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Cited by 157Banking stability, regulation, efficiencyMerger and Competition AnalysisFinance, Markets, and Regulation

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Competition in the Financial Sector: Overview of Competition Policies

Claessens, S.·2009·The World Bank Research Observer
DOI 10.1093/wbro/lkp004
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Abstract

Competition in the financial sector, as in other sectors, matters for allocative, productive, and dynamic efficiency. Theory suggests, however, that unfettered competition is not necessarily best given the special features of financial services. The author discusses these analytical complications before reviewing how to assess competition in the financial sector and its determinants. It is shown that competitiveness varies greatly across countries, in perhaps surprising ways, and that it is not driven by financial system concentration. Rather, systems with greater foreign entry and fewer entry and activity restrictions tend to be more competitive, confirming that contestability—the lack of barriers to entry and exit—determines effective competition. The author then analyzes how competition policy in the financial sector has generally been conducted and how changes in competition in the financial services industries should affect competition policy going forward. In part based on comparison with other industries, the author provides some suggestions on how competition policy in the financial sector could be better approached as well as what institutional arrangements best fit a modern view of competition policy in the sector. The specific competition challenges for developing countries is also highlighted. The author concludes that practices today fall far short of the need for better competition policy in the financial sector.

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  • In a less competitive environment, service quality is usually lower and prices are higher, which eventually leads to lesser demand and affects growth.

    “Moreover, service quality is usually lower and prices are higher in a less competitive environment, which eventually leads to lesser demand and affects growth (Claessens 2009).”

    From Financial inclusion, bank competition and economic growth in Africa (2021) · cites this paper as Claessens 2009

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Metadata

Authors
Claessens, S.
Corresponding author
Claessens, S.
ORCID
Claessens, S.
Venue
The World Bank Research Observer
Publisher
Oxford University Press (OUP)
Published
2009-02-01
Volume
24
Issue
1
Pages
83-118
ISSN
  • 0257-3032 (ISSN-L)
  • 1564-6971
DOI
10.1093/wbro/lkp004
OpenAlex
W3122974722
Cited by
157
References
0
Citations by year
2026: 7 · 2025: 9 · 2024: 4 · 2023: 9 · 2022: 9 · 2021: 17 · 2020: 10 · 2019: 8 · 2018: 8 · 2017: 10 · 2016: 9 · 2015: 6 · 2014: 11 · 2013: 21 · 2012: 7
FWCI
9.58
Type
journal article
Language
en
Open access
closed
Locations
  • The World Bank Research Observer (publishedVersion)
  • UvA-DARE (University of Amsterdam) (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • UvA-DARE (University of Amsterdam) (submittedVersion)
  • Data Archiving and Networked Services (DANS) (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
  • Social Sciences › Economics, Econometrics and Finance › Finance › Finance, Markets, and Regulation
Keywords
financial sector competition, competition policy, financial services, contestability, barriers to entry, foreign market entry, competitiveness factors, developing countries, institutional arrangements

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