Journal Article

Competition and Scope of Activities in Financial Services

Stijn Claessens and Daniela Klingebiel

in The World Bank Research Observer

Published on behalf of World Bank

Volume 16, issue 1, pages 19-40
Published in print May 2001 | ISSN: 0257-3032
Published online May 2001 | e-ISSN: 1564-6971 | DOI: http://dx.doi.org/10.1093/wbro/16.1.19
Competition and Scope of Activities in Financial Services

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This article analyzes the costs and benefits of different degrees of competition and different configurations of permissible activities in the financial sector and discusses the related implications for regulation and supervision. Theory and experience demonstrate the importance of competition for efficiency and confirm that a competitive environment requires a contestable system—meaning one that is open to competition—but not necessarily a large number of institutions. A competitive banking system can improve the distribution of consumer credit, enhance the corporate sector's access to financing, and mitigate the risks of financial crises. In an open market, in which services and products are provided in response to market signals, financial institutions respond by offering a wider scope of financial services. The optimal institutional design for supervisory functions is less obvious.

Journal Article.  0 words. 

Subjects: Development Planning and Policy

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