Considerations for bank competition, economic fragility & stability

By Richard Rambarran and Shaleeza Shaw

Since the conception of capitalism, competition has been the driver of economic growth, development and unprecedented rise in living standards. Every firm aims to successfully compete on the market, outdoing each other and possibly acquiring others. However, banks as entities are unique.

This perspective is grounded in the nature of the products offered: on the liability side, liquidity and means of payments; on the asset side, credit and again liquidity.

Scholars have articulated that competition works differently in banking since unlike other economic sectors where the exit of one firm has no negative impact on the sector and rivals stand to benefit from the collapse of a firm; the failure of a significant bank can possibly lead to systemic instability.