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Bank Competition: What is The Role of The Government?

January 18, 2012


César Calderón, Senior Economist, FPDCE
María Soledad Martínez Pería, Lead Economist, DECFP


Michael Fuchs, Acting Sector Manager and Adviser, AFTFE
Martha Martinez Licetti, Senior Economist, CICIS


Asli Demirgüç-Kunt, Director, DECVP & Chief Economist, FPD


Bank Competition: What is the Role of the Government?
January 18, 2012

This is the third in a series of seminars related to the 2013 Global Financial Development Report (GFDR).  The objective of the GFDR seminars is to present preliminary findings from the studies underlying the 2013 GFDR, and to get early informal feedback.  For presentations from past GFDR seminars, and for a list of planned GFDR seminars, see

This seminar will tackle the following questions:

How do regions fare in bank competition?  To accomplish this task, the GFDR team has been assembling a comprehensive database on measures of bank competition around the world.  The team will present structural and non-structural measures of competition and discuss their behavior across regions and over time.

Why competition matters? The financial crisis has reignited the interest of policymakers and academics in reassessing the impact of bank competition on the financial sector. Some point to ‘excessive’ or ‘reckless’ competition in banking as a cause of the crisis. Others note the problems resulting from lack of a level-playing field in banking, and argue that the problem got even worse as a result of the crisis-related interventions. The GFDR team will review new evidence on the impact of bank competition on financial development (notably, efficiency, access, and stability), relying on the wide cross-country data, as well as on selected case studies.

What role for the government in promoting competition?  In the recent financial crisis, some observers have pointed out that state intervention in support of the largest banks have increased banking concentration, reduced competition in the sector, and contributed to future instability by exacerbating the “too big to fail” problem. The team will analyze the drivers of bank competition and in particular examine the impact of governments’ contestability and transparency policies on bank competition. The team will then focus on examining how policies taken by the government during crises can impact bank competition.

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