Bank Reforms and Competition: New Global Evidence

This study investigates the relationships between bank reforms and competition and sets up a large-scale sample covering 15290 individual commercial banks from 90 countries. The empirical results of the full sample indicate that bank reforms, except for interest rate controls, increase competition significantly. To examine whether country heterogeneities influence the effects from bank reforms, we further divide countries into six groups: Advanced, Asia, Latin America, Middle East and North Africa (MENA), Sub-Saharan Africa (SSA), and Transition countries. Our results show that: (i) interest rate controls play an important role for Advanced countries; (ii) privatization is substantial for Transition countries, Asia, Latin America, and MENA; (iii) credit control is suitable for Asia; and (iv) removing entry barriers improves bank competition in MENA and SSA. Empirical results thus offer evidence that country characteristics do matter on the reform-competition nexus. Moreover, we also reveal that bank competition is enhanced through bank reforms, as well as financial and economic development variables. Hence, the government or authorities should take these influential factors into consideration when formulating relevant policies. These findings also provide important implications.