Authors: Kyriaki Kosmidou, Konstantinos Moutsianas

Title: THE EFFECT OF BANKING CONCENTRATION ON SYSTEMIC RISK: EVIDENCE FROM EUROZONE

Abstract

The effect of banking concentration on systemic risk constitutes a controversial issue both among policymakers and academics. The relationship between the concentration of banking systems and financial stability has always been a subject of debate and the empirical results are ambiguous. This study investigates the impact of national bank concentration of banking systems on systemic risk of Eurozone countries. Apart from concentration, we are interested on the impact of institutional and regulatory variables on the relationship of banking concentration and systemic risk. In the context of examination the effect of banking concentration on systemic risk, we control for a number of bank-specific and macroeconomic variables. There are two main motivations for this research. First, in the aftermath of the euro-area crisis there are arguments that suggest that European banking systems should begin to consolidate because Europe is ‘over-banked’. Second, the formation of banking systems’ structure is going to play an important role because financial stability has not been fully restored in Europe. The policy implications of the results of our research are important since they provide information on the level of banking concentration and the systemic risk.