Does bank competition lead to financial stability?: A comparative study between the Philippines and Thailand from 2000 to 2006

There are two competing theories on the effect of bank competition on financial stability, competition-fragility view and competition-stability view. The group hypothesizes that competition does not lead to financial stability. This is tested through regressing measures of loan risk, bank risk and equity capital on several market power indicators. The Generalized Method of Moments estimation is used to control for possible endogeneity of measures of the degree of market power. This study departs from the existing literature focusing on developed countries by comparing twenty banks from the Philippines and from Thailand. Data utilized are from the individual bank\u27s annual reports and the OSIRIS database from the 2000 to 2006. Results reveal that the Philippines support the competition-stability view while Thailand supports competition-fragility view