Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Competition in the Financial Sector: Overview of Competition Policies

Competition in the Financial Sector: Overview of Competition Policies Competition in the financial sector, as in other sectors, matters for allocative, productive, and dynamic efficiency. Theory suggests, however, that unfettered competition is not necessarily best given the special features of financial services. The author discusses these analytical complications before reviewing how to assess competition in the financial sector and its determinants. It is shown that competitiveness varies greatly across countries, in perhaps surprising ways, and that it is not driven by financial system concentration. Rather, systems with greater foreign entry and fewer entry and activity restrictions tend to be more competitive, confirming that contestabilitythe lack of barriers to entry and exitdetermines effective competition. The author then analyzes how competition policy in the financial sector has generally been conducted and how changes in competition in the financial services industries should affect competition policy going forward. In part based on comparison with other industries, the author provides some suggestions on how competition policy in the financial sector could be better approached as well as what institutional arrangements best fit a modern view of competition policy in the sector. The specific competition challenges for developing countries is also highlighted. The author concludes that practices today fall far short of the need for better competition policy in the financial sector. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The World Bank Research Observer Oxford University Press

Competition in the Financial Sector: Overview of Competition Policies

Claessens, Stijn
The World Bank Research Observer , Volume 24 (1) – Feb 9, 2009
Download PDF
36 pages

Loading next page...
 
/lp/oxford-university-press/competition-in-the-financial-sector-overview-of-competition-policies-Z0vhhvolTq

References (101)

Publisher
Oxford University Press
Copyright
© Published by Oxford University Press.
Subject
Symposium on Financial Sector
ISSN
0257-3032
eISSN
1564-6971
DOI
10.1093/wbro/lkp004
Publisher site
See Article on Publisher Site

Abstract

Competition in the financial sector, as in other sectors, matters for allocative, productive, and dynamic efficiency. Theory suggests, however, that unfettered competition is not necessarily best given the special features of financial services. The author discusses these analytical complications before reviewing how to assess competition in the financial sector and its determinants. It is shown that competitiveness varies greatly across countries, in perhaps surprising ways, and that it is not driven by financial system concentration. Rather, systems with greater foreign entry and fewer entry and activity restrictions tend to be more competitive, confirming that contestabilitythe lack of barriers to entry and exitdetermines effective competition. The author then analyzes how competition policy in the financial sector has generally been conducted and how changes in competition in the financial services industries should affect competition policy going forward. In part based on comparison with other industries, the author provides some suggestions on how competition policy in the financial sector could be better approached as well as what institutional arrangements best fit a modern view of competition policy in the sector. The specific competition challenges for developing countries is also highlighted. The author concludes that practices today fall far short of the need for better competition policy in the financial sector.

Journal

The World Bank Research Observer – Oxford University Press

Published: Feb 9, 2009

Keywords: JEL codes G10 G18 G28 L1 L5

There are no references for this article.