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Purpose: This paper analyzes the effect of the banking market (concentration and competition) on financial development. Design/methodology/approach: In order to estimate the effects of banking concentration and competition on financial development, we conducted an empirical analysis using the System Generalized Method of Moments (S-GMM) through a dynamic panel data model. Findings: The main results suggest that concentration and competition affect financial development. In particular, an increase in bank concentration may inhibit the country's financial development, due to the lack of competition. Our results do not confirm the controversy between concentration and competition, suggesting that concerning financial development, concentration is the reverse of competition. Practical implications: The results of this study add a new perspective on banking market power: a financial system concentrated or uncompetitive constrains financial development. Originality/value: The literature that combines the investigation of the effects of banking market structure (concentration) and banking market conduct (competition) on financial development is scarce. Although a concentrated banking sector can reduce competition through barriers to new entrants (which could expand financial services offer), it is also true that a concentrated banking sector can be competitive. In order to avoid the controversy, our paper chooses to look into a comprehensive approach considering independent measures of bank concentration and bank competition, which together refer to the banking framework. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to analyze the financial friction effect of non-performing loans (NPLs) on financial intermediation (FI) through empirical evidence from the Brazilian experience. Design/methodology/approach: The authors develop a new variable, financial intermediation flow and a new indicator, FI, both measures of FI. To empirically test FI, the authors use a dynamic panel data framework that draws on 101 banks (December 2000 to December 2015). Findings: An increase in NPL reduces FI. Thus, NPL amplifies financial friction in FI. This result holds in different time frames, such as the pre-crisis period, the crisis period and the post-crisis period. Practical implications: The FI measure developed in this study offers the policymakers a possibility to monitor financial stability. Originality/value: This study adds to this debate by proposing a measure of FI derived from financial flows. This measure allows one to estimate the role of NPL as a financial friction that can pose a threat to financial stability. [ABSTRACT FROM AUTHOR]

Purpose The purpose of this paper is to discuss more efficient mechanisms of regulation in the financial system.Design/methodology/approach The authors developed a theoretical two-period model of financial flows (FFs) that considers households, banks, and a social planner.Findings It is important to highlight that different from other studies that do not distinguish between financial crisis and financial instability, the authors assume financial instability does not mean crisis, but represents a deviation in the behavior of the aggregate financial intermediation and in the financial operations of each bank from the equilibrium.Practical implications The practical implication of the model is the proposition of an efficient policy for financial stability based on forward-looking financial regulations.Social implications An important result is that bank failures occur when banks do not maintain sufficient resources to support the liquidity constraint from the interbank market. Another result is that the central bank reacts, via exchange of reserves with the market, to financial instability. This behavior on the part of the central bank is inefficient because the banks will assume that in the case of failure they will be “saved;” thus it creates an adverse incentive (moral hazard) that can amplify the risk over the entire financial system.Originality/value The originality of the model is the proposition of an efficient policy for financial stability based on a forward-looking financial regulation. In this strategy the regulator acts in advance (ex ante) to minimize the mismatch of FFs in relation to the flow balance. This manner of acting is a counterpoint to the financial regulation based on capital requirement. [ABSTRACT FROM AUTHOR]

This study seeks to investigate a macroeconomic approach that could help bank regulators and supervisors perform their task of ensuring financial stability. To achieve this, an attempt is made to explain the behavior of banks by analyzing aggregate time series of credit lending and deposit-taking, which are the variables involved in financial intermediation. This article's main contribution is to present evidence of banks’ behavior in their role as financial intermediaries, in terms of the performance of the variables that represent their credit-granting or deposit-taking decisions. For this purpose the study used a vector autoregressive model to construct impulse response functions and the Granger test. The results demonstrate the existence of bilateral causality between credit lending and deposit--taking, suggesting that banks actively manage the financial intermediation process. In addition, the results show that shocks to deposits destabilize the credit lending process, and credit supply shocks, in turn, destabilize deposit-taking. The latter result is important for understanding how financial instability can arise, and is thus relevant for the bank regulator. [ABSTRACT FROM PUBLISHER]