Banking Competition and Stability: Comprehensive Literature Review

Abstract

The main aim of this paper is to define and propose the determining variables of banking competition by reviewing the literature on bank competition. Extensive review of the literature led to the identification of main variables that can be used to measure banking competition. They include market structure variables, contestability variables; inter industry variables, institutional variables and macro-economic condition variables. The exploration of these important variables began by reviewing and analysing two main schools of thought on bank competition. They include competition fragility and competition stability theories. The analysis of schools of though is followed by measures of competition such as HHI, Lerner index, Boone indicator and Z-score. The implications of this study are targeted for bank executives and government officials who are mainly concerned with improving the social well-fare of stakeholders.