Competition and stability in the banking sector: theory and empirical evidence.

Since the outbreak of the financial crises in the 1980s, the relationship between competition and stability in the banking sector has been of primary interest for both academics and policymakers. Building on the seminal paper by Beck, De Jonghe and Schepens (2013), we study how competition and stability are related using a sample of around 20,000 banks from 113 countries during the period from 1996 to 2014. We reach two major findings. Firstly, country-specific features play a crucial role in explaining the large cross-country variations in the competition-stability relationship. Secondly, the way in which competition and stability interact is non-linear and this non-linearity is highly influenced by country-specific factors.