Bank Concentration and Credit Volatility

Abstract

This paper uses an unbalanced panel covering ninety-three countries over the 1990-2002 period to study the empirical relationship between bank concentration and credit volatility. The paper finds that there is a strong negative relationship between loans concentration and credit sensitivity to external shocks. It also shows that this result is robust to different samples, measures of concentration and econometric techniques, and that this relationship is not driven by crisis episodes. These results are in line with the hypothesis that banks with a larger market share can internalize the countercyclical effects of expanding credit during recessions.