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Pré-Publication, Document De Travail Année : 2017

Bank consolidation and financial stability revisited: Evidence from Indonesia

Résumé

This paper extends prior literature on the link between consolidation and stability in banking using a single country setting. From a sample of Indonesian commercial banks over the 2010-2015 time span, we construct the Lerner index as a measure of bank market power due to consolidation. Our empirical results document that higher bank market power tends to reduce insolvency risk and increase capital ratios. A deeper analysis however reveals that higher market power is detrimental for financial stability in state-owned banks and small private-owned banks. We therefore highlight that although consolidation among state-owned banks reduces cost inefficiency as in Hadad et al. (2013), further efforts to reduce state-owned banks' market power are necessary after consolidation. This paper also suggests that strengthening market power in large private-owned banks, but encouraging competition in small private-owned banks to reduce market power, are of particular importance for financial stability. JEL Code: G21, G28
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Dates et versions

hal-01577970 , version 1 (28-08-2017)
hal-01577970 , version 2 (18-09-2017)

Identifiants

  • HAL Id : hal-01577970 , version 2

Citer

Inka Yusgiantoro, Wahyoe Soedarmono, Amine Tarazi. Bank consolidation and financial stability revisited: Evidence from Indonesia. 2017. ⟨hal-01577970v2⟩

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