Competition and Scope of Activities in Financial Services

By Stijn Claessens, D. Klingebiel. 2001

124 citations recorded by the source corpus.

This article analyzes the costs and benefits of different degrees of competition and different configurations of permissible activities in the financial sector and discusses the related implications for regulation and supervision. Theory and experience demonstrate the importance of competition for efficiency and confirm that a competitive environment requires a contestable system meaning one that is open to competition-but not necessarily a large number of institutions. A competitive banking system can improve the distribution of consumer credit, enhance the corporate sector's access to financing, and mitigate the risks of financial crises. In an open market, in which services and products are provided in response to market signals, financial institutions respond by offering a wider scope of financial services. The optimal institutional design for supervisory functions is less obvious. This article reviews alternative frameworks for financial services markets from an economic perspective using experiences in several countries as a guide. Authors focus first on the role of competition in the financial sector and the tradeoffs between competition on the one hand and stability and innovation on the other. Authors next examine alternative structures of financial services dictated in many countries.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2d001ec58ba2f40100abe2a91262b49002e62106

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Citations in the corpus

Bank Regulation and Supervision: What Works Best? (2001, background): “Many of these studies find that competition matters for static and dynamic efficiency improvements [see the reviews by Berger and Humphrey (1997) and Claessens and Klingebiel (2000)].”
International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis (2007, unknown): “On the other hand, fewer regulatory restrictions permit the utilization of economies of scale and scope (Claessens and Klingebiel, 2000), while they might also increase the franchise value of banks and result in more prudent behaviour.”
Institutional development and bank stability: Evidence from transition countries (2014, background): “An alternative view, however, says that if banks are liberalized and given greater freedom, they are more able to pursue economies of scale and scope, diversify income flows, and consequently become less risky (Claessens and Klingebiel, 2000).”