The Impact of Bank Competition and Institutional Quality on Bank Stability: International Evidence

Abstract

This study aims to determine the effects of bank competition and institutional quality on bank stability. It also intends to examine the impact of competition and institutional quality on bank stability. The System Generalized Method of Moments (SYS-GMM) is used to analyze the sample, which comprises 127 countries selected from 79 developing and 48 developed countries from 1993 to 2017, based on the Global Financial Development and Worldwide Governance Indicators. The results show that competition has a negative effect, especially in developed countries. On the other hand, the institutional quality index significantly and positively influences bank stability. Furthermore, competition and institutional quality significantly affect bank stability, particularly in developed countries. This implies that increasing institutional quality encourages higher competition, improving bank stability.