Monetary History, Exchange Rates and Financial Markets

Monetary History, Exchange Rates and Financial Markets

Essays in Honour of Charles Goodhart, Volume Two

Edited by Paul Mizen

Monetary History, Exchange Rates and Financial Markets is an impressive collection of original papers in honour of Charles Goodhart’s outstanding contribution to monetary economics and policy. Charles Goodhart has written extensively on many of these topics and has become synonymous with his field; the chapters within this book offer a summary of current thinking on his own research subjects and include perspectives on controversies surrounding them.

Chapter 8: Competition and stability: what's special about banking?

Elena Carletti and Philipp Hartmann

Subjects: economics and finance, economic psychology, money and banking


8. Competition and stability: what’s special about banking? Elena Carletti and Philipp Hartmann* 1. INTRODUCTION The speciality of the banking system from the perspective of stability is a widely recognised idea (see for example Goodhart, 1987a and Goodhart et al., 1998). What is much less debated in the literature is the implications this special status has for market structures and competition policies. Similarly, not much research work has been dedicated to the implications different bank market structures and degrees of competitiveness have for bank stability and supervisory policies (see also Allen and Gale, 2000b and Canoy et al., 2001). In this chapter we want to look at two areas to address some of those questions. First, we would like to discuss the institutional structure of competition policies, particularly of bank merger reviews. We want to analyse which government agencies are in charge of these reviews in different countries and what are the relative roles played by antitrust authorities and prudential supervisors. In this context we will also briefly look at how competition policy in banking more generally differs from that in other sectors. Second, since a whole variety of approaches emerges from this first set of issues, we then want to ask the question what the literature has to say about the relationship between competition and stability in banking. We will review the theoretical literature linking market structures with bank stability, supervisory tools and safety nets and then the empirical literature measuring the sign of the...

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