Banking sector competition and prudential regulation

Banking sector competition and prudential regulation

Fecha: julio 2013

Autores: Enrique Sánchez del Villar, A.F.I.

Etiquetas: Concentración bancaria, Reestructuración bancaria, Regulación financiera, Competencia

Spanish and International Economic & Financial Otlook, SEFO, V. 2 N.º 4

Evidence has shown a positive link between increased competition and increased risk taking behavior in the financial sector. Although this subject has been analyzed on many occasions, it generates renewed interest whenever a country, or group of countries, faces a banking crisis, given the large costs for economic growth and public accounts associated to such crises. As highlighted in a recent working paper published by the International Monetary Fund (IMF) this past May2, prudential regulation is and should be and important element for banking sector competition policy. Several studies have quantified the costs of banking crises and the benefits of prudential regulation in preventing or reducing the financial burden, as well as the recurrence of crises themselves. In this context, we examine banking competition and prudential regulation in Spain – a country in the process of overcoming the most serious banking crisis in its recent history. Spain must address several of the traditional challenges related to banking competition, such as: i) an intense concentration process; ii) the role of the public sector in nationalized banks; and, iii) the desirability of placing limits on certain types of deposit remuneration, among other issues.

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