Bank Competition and Systemic Risk of Banking System in Iran

Document Type : Research Paper

Authors

Department of Financial Management and Insurance, Faculty of Management, University of Tehran, Tehran, Iran

Abstract

Bank competition and financial stability is one of recent topics which researchers have paid attention since global financial crisis. This study is investigating the effect of competition on systemic stability in Iran’s banking system.
Statistical population is all Iranian banks under supervision of centeral bank and our sample consist of 20 banks in period of 2009 and 2021. Lerner index and Herfindahl–Hirschman index are proxies of market power and concentration respectively. ΔCoVaR is our systemic risk measure which can be decomposed into its components.
Lerner index had a statistically significant positive relationship with ΔCoVaR while HHI didn’t. Market power haven’t shown any effect on idiosyncratic tail risk and the risk caused by macroeconomic and financial factors, as well as the combination of the two, and in other words, it doesn’t affect the overall systemic risk through this channel. However, the HHI has had a positive and significant effect. Also, market power has a positive and significant relationship with the interconnectedness component, while the concentration index has not shown a significant relationship.
This study has proven that the more competitive system, the more stable. Meanwhile, market power affects systemic risk through interconnectedness, but idiosyncratic risk is the effective channel for concentration.
JEL Classification: D40, G11, G21

Keywords

Main Subjects

References

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Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 58, Issue 3 - Serial Number 144
December 2023
Pages 459-485

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History

  • Receive Date: 17 July 2023
  • Revise Date: 26 October 2023
  • Accept Date: 27 November 2023

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