Financial Crises, Concentration and Efficiency: Effects on Performance and Risk of Banks

This paper analyzes the changes that financial crises cause in the relationship between bank market share, efficiency and profitability, as well as in the relationship between market concentration and risk. The empirical analysis was performed on a sample of 15,399 banks from major OECD countries over the period 2002-2009. The results show that market power was replaced by efficiency as the main determinant of bank profitability during the crisis. Prior to the crisis, market concentration and risk had a quadratic relationship, while thereafter the increase in market concentration produced no increase in risk.