3. Banking Sector Reform, Competition, and Bank Stability

The chapter investigates the effects of banking sector reform and competition on bank stability in transition countries from 1998 to 2016. It finds that higher market power leads to greater bank fragility, while reforms aimed at increasing competition and financial development enhance stability. The study also examines the impact of various regulatory measures, showing that stringent capital requirements and higher market power can increase the risk of insolvency. Notably, the research highlights that while certain regulations can increase stability, they may also reduce market contestability, emphasizing the need for a balanced regulatory framework. The analysis is based on unbalanced data from 22 transition countries and employs robust econometric methods to control for various factors, making it a valuable resource for understanding the dynamics of bank stability in transition economies.