Evaluating the empirical effect of bank concentration on financial stability: Evidence from ASEAN-5 economies for the period 2009-2013

This research investigates the empirical effect of bank concentration on financial stability using data from the ASEAN-5 economies for the period 2009 to 2013. In the ASEAN region, it is widely known that a small number of large banks dominate the banking sector. This signifies the existence of a highly concentrated market that may create positive and negative repercussions on the stability of the financial system. This paper uses the generalized least squares (GLS) method to assess and understand the underlying relationship between the variables of interest. The outcome of the study is in accordance with the researchers\u27 a priori expectation, indicating that bank concentration has a positive relationship with financial stability. Theoretically, the results is in line with the concentration-stability view, which states that bank concentration is beneficial for an economy\u27s financial system. Hence, with the upcoming ASEAN integration, it is most advantageous for local banks to enter into partnerships such as joint ventures and mergers and acquisitions not only to become competitive in the long run but also to achieve financial stability