4/2022 Merike Kukk, Alari Paulus, Nicolas Reigl. Credit market concentration and systemic risk in Europe
Working Papers of Eesti Pank 4/2022
We assess empirically the relationship between credit market concentration and a novel country-level systemic risk indicator that has been developed at the European Central Bank. We find a weakly U-shaped relationship between market concentration and systemic risk for Western European countries, where very low and high levels of market concentration are associated with higher systemic risk. Cumulative estimates with dynamic models show that systemic risk has a persistent negative response to an increase in market concentration from low and median levels of concentration. Local projection estimates for the period preceding the global financial crisis also suggest that an increase in market concentration may have further added to systemic risk at a time when it was building up in countries with high banking concentration,
demonstrating the complexity of the relationship between systemic risk and market concentration.
Merike Kukk, Eesti Pank and Tallinn University of Technology, [email protected];
Alari Paulus, Eesti Pank, [email protected];
Nicolas Reigl, Eesti Pank and Tallinn University of Technology, [email protected].
The views expressed in this paper are personal and do not necessarily represent the official views of Eesti Pank or the Eurosystem.
