Competition, Stability and Financial Crisis in Thai Banking Sector
This paper studies the trend of competition in banking industry in Thailand from 1992 to 2013. Furthermore, we investigate whether the change in the competition environment has any impacts on the financial stability of the banking system.
First, we find that the competition level was volatile in the 1990s but became much more stable over the last 7 years. Secondly, our result suggests that the degree of competition in banking industry destabilizes the financial system due to equity capital reduction, higher banks risk-taking behavior and banks probability of default. However, by taking the 1997 Asian financial crisis into account; an increasing competition level after 1998 produces less negative effect to insolvency risk compared with the before-crisis period and the impacts of competition on banks equity capital and risk-taking behavior have started disappearing since then due to developments in financial market which diminish the loan market shares and increase portfolio diversification as well as the financial reforms in following years after the severe financial crisis.
 Arellano, M., and Bond, S. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies 58: 277-297.
 Beck, T., Dermirgüç-Kunt, A., Levine, R. 2006. Bank concentration, competition, and crises: first results. Journal of Banking and Finance, 30: 1581-1603.
 Berger, A.N., Mester, L.J. 1997. Inside the black box: what explains differences in the efficiencies of financial institution? Journal of Banking and Finance, 21: 895-947.
 Berger, A.N., Klapper, L., Turk-Ariss, R. 2009. Bank competition and financial stability. Journal of Financial Services Research, 35: 99-118.
 Boone, J. 2008. A new way to measure competition, Economic Journal, 118: 1245-1261.
 Boyd, J., and De Nicoló, G. 2005. The theory of bank risk-taking and competition revisited. Journal of Finance, 60: 1329-1343.
 Boyd, J., De Nicoló, G,. and Jalal, A. 2009. Bank competition, risk and asset allocations, Working Paper WP/09/143, IMF.
 Charoenka, T. 2011. The stability-concentration relationship in Thailand banking system. An Independent Study, Thammasat University.
 Fungacova, Z., and Weill, L. 2009. How market power influences bank failures: Evidence from Russia. BOFIT Discussion Paper No. 12/2009, Bank of Finland, Institute for Economies in Transition.
 Hainz, C., Weill, L., Godlewski, C.J. 2008. Bank competition and collateral: Theory and Evidence. Research Discussion Paper No. 27/2008, Bank of Finland.
 Hesse, H. and Cihak, M. 2007. Cooperative banks and financial stability, Working Paper WP/07/2, IMF.
 Jiménez, G., Lopez, J.A., Saurina, J. 2013. How does competition affect bank risk-taking? Journal of Financial Stability, 9: 185-195.
 Keeley, M.C. 1990. Deposit insurance, risk and market power in banking. American Economic Review, 80: 1183-1200.
 Kubo, K. 2006. The degree of competition in the Thai banking industry before and after the East Asian crisis. ASEAN Economic Bulletin, 23: 325-340.
 Laeven, L., and Levine, R. 2007. Is there a Diversification discount in financial conglomerates? Journal of Financial Economics 85: 331-367.
 Leuvensteijn, M.V., Bikker, J.A., Rixtel, A.V., Sorensen, C.K. 2007. A new approach to measuring competition in the loan markets of the Euro area, ECB Working Paper Series No. 768, European Central Bank.
 Leuvensteijn, M.V. 2008. The Boone-indicator: Identifying different regimes of competition for the American Sugar Refining Company 1890-1914, Working Papers 08-37, Utrecht School of Economics.
 Liu, H., Molyneux, P., Nguyen, L.H. 2012. Competition and risk in South East Asian commercial banking. Applied Economics, 44: 3627-3644.
 Marcus, A.J. 1984. Deregulation and bank financial policy. Journal of Banking and Finance 8: 557-565.
 Martinez-Miera, D., and Repullo, R. 2010. Does competition reduce the risk of bank failure? Review of Financial Studies, 23: 3638-3664.
 Menkhoff, L., and Suwanaporn, C. 2007. 10 Years after the crisis: Thailand’s financial system reform. Journal of Asian Economics, 18: 4-20.
 Repullo, R. 2004. Capital requirements, market power, and risk-taking in banking. Journal of Financial Intermediation, 13: 156-182.
 Roengpitya, R. 2010. Measuring the level of competition in the loan market of the Thai banking industry using the Boone indicator, EconPapers Working Paper No. 2010-01, Economic research department, Bank of Thailand.
 Schaeck, K., Cihak, M., Wolfe, S. 2006. Are more competitive banking systems more stable? Unpublished Working Paper No. 143, IMF.
 Schaeck, K., and Cihak, M. 2007. Banking competition and capital ratios, Working Paper No. 07/216, IMF.
 Schaeck, K., and Cihak, M. 2010. Competition, efficiency, and soundness in banking: an industrial organization perspective, Discussion Paper Vol.2010-68S, Tilburg University, Center of Economic Research.
 Schaeck, K., and Cihak, M. 2014. Competition, efficiency, and stability in banking. Financial Management, 43: 215-241.
 Soedarmono, W., Machrouh, F., Tarazi, A. 2011. Bank market power, economic growth and financial stability: evidence from Asian banks. Journal of Asian Economics, 22(6): 460-470.
 Soedarmono, W., Machrouh, F., Tarazi, A. 2013. Bank competition, crisis and risk taking: Evidence from emerging markets in Asia. Journal of International Financial Markets, Institutions & Money, 23: 196-221.
 Yeyati, E.L., and Micco, A. 2007. Concentration and foreign penetration in Latin American baking sectors: Impact on competition and risk. Journal of Banking and Finance, 31: 1633-1647.
The Copyright Transfer Form to ASERS Publishing (The Publisher)
This form refers to the manuscript, which an author(s) was accepted for publication and was signed by all the authors.
The undersigned Author(s) of the above-mentioned Paper here transfer any and all copyright-rights in and to The Paper to The Publisher. The Author(s) warrants that The Paper is based on their original work and that the undersigned has the power and authority to make and execute this assignment. It is the author's responsibility to obtain written permission to quote material that has been previously published in any form. The Publisher recognizes the retained rights noted below and grants to the above authors and employers for whom the work performed royalty-free permission to reuse their materials below. Authors may reuse all or portions of the above Paper in other works, excepting the publication of the paper in the same form. Authors may reproduce or authorize others to reproduce the above Paper for the Author's personal use or for internal company use, provided that the source and The Publisher copyright notice are mentioned, that the copies are not used in any way that implies The Publisher endorsement of a product or service of an employer, and that the copies are not offered for sale as such. Authors are permitted to grant third party requests for reprinting, republishing or other types of reuse. The Authors may make limited distribution of all or portions of the above Paper prior to publication if they inform The Publisher of the nature and extent of such limited distribution prior there to. Authors retain all proprietary rights in any process, procedure, or article of manufacture described in The Paper. This agreement becomes null and void if and only if the above paper is not accepted and published by The Publisher, or is with drawn by the author(s) before acceptance by the Publisher.