Market Structure and Financial Stability: Theory and Evidence.

This paper investigates on the relationship between market structure and financial stability. More in details, considering the profit-oriented commercial banks and mutual cooperative banks, this work presents both a theoretical and an empirical approach in order to test the above relationship. As to the theoretical framework a case of imperfect mixed-Cournot competition between the two types of agents and a form of credit risk are considered. Moreover, to empirically explore the link between competition and financial stability the analysis employs a parametric approach using the ABI data allowing banks’ information from 1994 to 2015. The overall results show a negative trade-off between concentration and financial stability. However, this result, in the theoretical model, is strictly dependent on mutual cooperative banks’ presence in the market.