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This report examines the interplay between banking competition and financial stability, taking into account the experiences of the recent global crisis and the policy response to date.
Policy makers are faced with striking a balance between sometimes conflicting objectives. Banks need to have sufficient capital and be large and diversified enough to absorb major shocks, whilst remaining sufficiently competitive to provide consumers with reasonably-priced services.
Pre-crisis financial deregulation allowed banks to change their business models in response to competition in a way that has proven negative for financial stability.
The policy response to the global financial crisis to date has not adequately addressed some of the fundamental problems affecting the banking sector and thus the risks to financial stability.
Part 1: Competition in retail banking and financial stability
Part 2: Competition in derivative markets and financial stability
Part 3: Bank competition and government guarantees
Related OECD analysis
This report was prepared for the G20 Workshop "The New Financial Landscape", sponsored by the Australian Treasury and the Reserve Bank of Australia, which took place in July 2011.