Competition in Banking

The worldwide trend towards consolidation of the financial sector has focused the atten-tion of policy-makers on the potential implications for the economy. This article contrib-utes to the debate by reviewing some of the issues raised in the theoretical and empirical literature on competition in the banking sector. well-functioning banking sector is im-portant to any economy. Banks facili-tate economic growth by, among other things, providing a means to hold and exchange financial assets and by supplying cred-it to businesses and consumers. The potential benefits of competition in banking are similar to its benefits for other industries. It can im-prove allocative, productive, and dynamic effi-ciencies (e.g., by promoting innovation), with the ultimate benefit being stronger economi