NEXUS OF COMPETITION AND STABILITY: CASE OF BANKING IN INDONESIA
Keywords:
Bank competition, stability, GMM
Abstract
This paper analyzes the relationship between banking competition and banking stability in Indonesia, where the bank lending is the major source of funding on this country with a series of structural changes including deregulation, economic crisis, and consolidation. We apply generalized method of moment approach on individual bank data, and the result shows that competitive banking will increase the economic stability. Under a competitive industry, banks must improve their efficiency, increase their loans disbursement, diversify their business, boost their assets and enhance their capitalization. This paper emphasize that the efficiency is a critical to reduce risk, both for large and small banks. Furthermore, regardless their size, an adequate capital is an important factor for the bank to cope with shocks in the market
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References
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Berger, Allen N., Klapper, Leora F. dan Turk-Ariss, Rima, “Bank Competition and Financial Stability”. Journal of Financial Services Research, 2009, 35(2), hal. 99-118, doi: 10.1007/s10693-008-0050-7
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2011, 94(4), hal. 1025-1044, doi: 10.1162/REST_a_00210
Boyd, John H., De Nicolò, Gianni dan Jalal, Abu M., “Bank Risk-Taking and Competition Revisited: New Theory and New Evidence”. IMF Working Paper, 2006, 06(297)
Boyd, John H., De Nicoló, Gianni dan Smith, Bruce D., “Crises in Competitive versus Monopolistic Banking Systems”. Journal of Money, Credit & Banking (Ohio State University Press), 2004, 36(3), hal. 487-506
Bresnahan, Timothy F., “The oligopoly solution concept is identified”. Economics Letters, 1982, 10(1–2), hal. 87-92, doi: http://dx.doi.org/10.1016/0165-1765(82)90121-5
Caminal, Ramon dan Matutes, Carmen, “Market Power and Banking Failure”. International Journal of Industrial Organization, 2002, 20(9), hal. 1341-1361.
Chou, Catherine. (1999). Indonesian banks: Survival of the fittest. In A. D. Bank (Ed.), Rising to the Challange in Asia: A Study of Financial Market (Vol. 6, pp. 1-72). Manila: Asian Development Bank.
Claessens, Stijn, Djankov, Simeon dan Lang, Larry H.P. . (1999). Who controls East Asian corporations? Policy Research Working Paper World Bank 2054, 1-42. http://papers.ssrn.co/sol3/papers.cfm?abstract_id=597191
Davis, Kevin, “Bank deregulation, supervision and agency problem”. Australian Economic Review, 1995, 28(3), hal. 43-54,
Demirgüç-Kunt, Asli dan Detragiache, Enrica “The determinants of banking crises in developing and developed countries”. IMF Staff Papers, 1998, 45(1), hal. 81-109.
Demirgüç-Kunt, Asli, Laeven, Luc dan Levine, Ross, “Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation”. Journal of Money, Credit & Banking (Ohio State University Press), 2004, 36(3), hal. 593-622,
Djiwandono, Soedrajad J., (2005), Bank Indonesia and the crisis: An insider’s view, Singapore: Institute of Southeast Asian Studies.
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Monetary Fund, 2001, 01(52), hal. 139.
Fane, George dan McLeod, Ross H., “Banking collapse and restructuring in Indonesia, 1997- 2001”. Cato Journal, 2002, 22(2), hal. 277-295.
Hao, Jonathan, Hunter, William Curt dan Yang, Won Keun, “Deregulation and efficiency: the case of private Korean banks”. Journal of Economics and Business, 2001, 53(2–3), hal.
237-254, doi: http://dx.doi.org/10.1016/S0148-6195(00)00051-5
Hicks, J. R., “Annual Survey of Economic Theory: The Theory of Monopoly”. Econometrica, 1935, 3(1), hal. 1-20, doi: 10.2307/1907343
Jiménez, Gabriel, Lopez, Jose A. dan Saurina, Jesús. (2007). How does competition impact bank risk-taking? Working Paper of Federal Reserve Bank of San Fransisco, 23 (September), 1-37.
http://www.frbsf.org/publications/economics/papers/2007/wp07-23bk.pdf
Jiménez, Gabriel, Lopez, Jose A. dan Saurina, Jesús, “How does competition affect bank risk-taking?”. Journal of Financial Stability, 2013, 9(2), hal. 185-195, doi: http://dx.doi.org/10.1016/j.jfs.2013.02.004
Kasman, Adnan “Consolidation and competition in the banking industries of the EU member and candidate countries”. Emerging Markets Finance and Trade, 2010, 46(6), hal. 121-139,
doi: 10.2753/REE1540-496X460608
Keeley, Michael C., “Deposit Insurance, Risk, and Market Power in Banking”. The American Economic Review, 1990, 80(5), hal. 1183-1200, doi: 10.2307/2006769
Laeven, Luc, (2005), Banking Sector Performance in East Asian Countries: The Effects of Competition, Diversification, and Ownership, Washington D.C.: World Bank
Liu, Hong, Molyneux, P. dan Wilson, John O.S., “Competition and Stability in European Banking: A Regional Analysis”. The Manchester School, 2013, 81(2), hal. 176-201, doi:
10.1111/j.1467-9957.2011.02285.x
Margono, Heru, Sharma, Subhash C. dan Melvin Ii, Paul D., “Cost efficiency, economies of scale, technological progress and productivity in Indonesian banks”. Journal of Asian Economics,
2010, 21(1), hal. 53-65, doi: http://dx.doi.org/10.1016/j.asieco.2009.06.001
Matutes, Carmen dan Vives, Xavier, “Imperfect competition, risk taking, and regulation in banking”. European Economic Review, 2000, 44(1), hal. 1-34, doi: http://dx.doi.org/10.1016/S0014-2921(98)00057-9
Mishkin, Frederic S. , “Understanding financial crises: A developing country perspective”. NBER Working Paper Series, 1996, 5600(May), hal. 1-49
Nasution, Anwar. (2000). The financial crisis in Indonesia. In S. Masuyama, D. Vandenbrink & C. S. Yue (Eds.), East Asia’s financial systems: Evolution and crisis (pp. 370). Singapore:
Institute of Souteast Asian Studies Publishing.
Pangestu, Mari, “The Indonesian Bank Crisis and Restructuring: Lessons and Implications for other Developing Countries”. G-24 Discussion Paper Series of United Nations Conference on Trade and Development, 2003, 23 (November), hal. 1-36
Pradiptyo, Rimawan, Rokhim, Rofikoh, Gumilang Aryo, Sahadewa, Ulpah, Maria, Sasmitasiwi, Banoon dan Faradynawati. (2011). A bridge too far: the strive to establish a financial service
regulatory authority (OJK) in Indonesia. Retrieved from SSRN website: http://ssrn.com/
abstract=1878565 doi:http://dx.doi.org/10.2139/ssrn.1878565
Rosengard, Jay K. dan Prasetyantoko, A., “If the Banks are Doing So Well, Why Can’t I Get a Loan? Regulatory Constraints to Financial Inclusion in Indonesia”. Asian Economic Policy
Review, 2011, 6(2), hal. 273-296, doi: 10.1111/j.1748-3131.2011.01205.x
Rosser, Andrew (2002), The Politics of Economic Liberalisation in Indonesia: State, Market and Power, Oxon, UK: Routledge.
Rosul, Mochammad. (2002). The Capital Market in Indonesia’s Economy: Development and Prospect. http://www.nomurafoundation.or.jp/en/capital/archive/
Schaeck, Klaus dan Cihak, Martin, “Banking Competition and Capital Ratios”. Working Paper of International Monetary Fund, 2007, 07(216), hal. 1-42
Smirlock, Michael, Gilligan, Thomas dan William, Marshall, “Tobin’s q and the StructurePerformance Relationship”. The American Economic Review, 1984, 74(5), hal. 1051-
1060
Soedarmono, Wahyoe, Machrouh, Fouad dan Tarazi, Amine, “Bank market power, economic growth and financial stability: Evidence from Asian banks”. Journal of Asian Economics,
2011, 22(6), hal. 460-470, doi: http://dx.doi.org/10.1016/j.asieco.2011.08.003
Turk Ariss, Rima, “On the implications of market power in banking: Evidence from developing countries”. Journal of Banking & Finance, 2010, 34(4), hal. 765-775, doi: http://dx.doi.
org/10.1016/j.jbankfin.2009.09.004
Vennet, Rudi Vander, “Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe”. Journal of Money, Credit and Banking, 2002, 34 (1), hal. 254-282, doi:
10.2307/3270685
World Bank. (2013). Global Financial Development Report. Rethinking the Role of State in Finance. Retrieved from econ.worldbank.org website: http://econ.worldbank.org/
Yeyati, Eduardo Levy dan Micco, Alejandro, “Concentration and foreign penetration in Latin American banking sectors: Impact on competition and risk”. Journal of Banking & Finance,
2007, 31 (6), hal. 1633-1647, doi:http://dx.doi.org/10.1016/j.jbankfin.2006.11.003
Bank Indonesia. (2008). The Program of Indonesian Banking Architecture. http://www.bi.go.id/web/id/Publikasi/Perbankan+dan+Stabilitas+Keuangan/Arsitektur+Perbankan+Indonesia/api18.htm
Beck, Thorsten, (2008), Bank Competition and Financial Stability: Friends or Foes?, Paper presented at the G20 Seminar in the Financial Sector, Bali, Indonesia.
Beck, Thorsten, De Jonghe, Olivier dan Schepens, Glenn, “Bank competition and stability: Crosscountry heterogeneity”. Journal of Financial Intermediation, 2013, 22(2), hal. 218-244, doi:
http://dx.doi.org/10.1016/j.jfi.2012.07.001
Berger, Allen N. dan Hannan, Timothy H., “The efficiency cost of market power in the banking industry: A test of the `quiet life’ and”. Review of Economics & Statistics, 1998, 80(3), hal. 454.
Berger, Allen N., Klapper, Leora F. dan Turk-Ariss, Rima, “Bank Competition and Financial Stability”. Journal of Financial Services Research, 2009, 35(2), hal. 99-118, doi: 10.1007/s10693-008-0050-7
Bikker, Jacob A. dan Haaf, Katharina, “Competition, concentration and their relationship: An empirical analysis of the banking industry”. Journal of Banking & Finance, 2002, 26(11), hal. 2191-2214, doi: http://dx.doi.org/10.1016/S0378-4266(02)00205-4
Bikker, Jacob A., Shaffer, Sherrill dan Spierdijk, Laura, “Assessing Competition with the PanzarRosse Model: The Role of Scale, Costs, and Equilibrium”. Review of Economics and Statistics,
2011, 94(4), hal. 1025-1044, doi: 10.1162/REST_a_00210
Boyd, John H., De Nicolò, Gianni dan Jalal, Abu M., “Bank Risk-Taking and Competition Revisited: New Theory and New Evidence”. IMF Working Paper, 2006, 06(297)
Boyd, John H., De Nicoló, Gianni dan Smith, Bruce D., “Crises in Competitive versus Monopolistic Banking Systems”. Journal of Money, Credit & Banking (Ohio State University Press), 2004, 36(3), hal. 487-506
Bresnahan, Timothy F., “The oligopoly solution concept is identified”. Economics Letters, 1982, 10(1–2), hal. 87-92, doi: http://dx.doi.org/10.1016/0165-1765(82)90121-5
Caminal, Ramon dan Matutes, Carmen, “Market Power and Banking Failure”. International Journal of Industrial Organization, 2002, 20(9), hal. 1341-1361.
Chou, Catherine. (1999). Indonesian banks: Survival of the fittest. In A. D. Bank (Ed.), Rising to the Challange in Asia: A Study of Financial Market (Vol. 6, pp. 1-72). Manila: Asian Development Bank.
Claessens, Stijn, Djankov, Simeon dan Lang, Larry H.P. . (1999). Who controls East Asian corporations? Policy Research Working Paper World Bank 2054, 1-42. http://papers.ssrn.co/sol3/papers.cfm?abstract_id=597191
Davis, Kevin, “Bank deregulation, supervision and agency problem”. Australian Economic Review, 1995, 28(3), hal. 43-54,
Demirgüç-Kunt, Asli dan Detragiache, Enrica “The determinants of banking crises in developing and developed countries”. IMF Staff Papers, 1998, 45(1), hal. 81-109.
Demirgüç-Kunt, Asli, Laeven, Luc dan Levine, Ross, “Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation”. Journal of Money, Credit & Banking (Ohio State University Press), 2004, 36(3), hal. 593-622,
Djiwandono, Soedrajad J., (2005), Bank Indonesia and the crisis: An insider’s view, Singapore: Institute of Southeast Asian Studies.
Enoch, Charles , Baldwin, Barbara, Frecaut, Olivier dan Kovanen, Arto, “Indonesia: Anatomy of a Banking Crisis, two years of living dangerously 1997-1999”. Working Paper of International
Monetary Fund, 2001, 01(52), hal. 139.
Fane, George dan McLeod, Ross H., “Banking collapse and restructuring in Indonesia, 1997- 2001”. Cato Journal, 2002, 22(2), hal. 277-295.
Hao, Jonathan, Hunter, William Curt dan Yang, Won Keun, “Deregulation and efficiency: the case of private Korean banks”. Journal of Economics and Business, 2001, 53(2–3), hal.
237-254, doi: http://dx.doi.org/10.1016/S0148-6195(00)00051-5
Hicks, J. R., “Annual Survey of Economic Theory: The Theory of Monopoly”. Econometrica, 1935, 3(1), hal. 1-20, doi: 10.2307/1907343
Jiménez, Gabriel, Lopez, Jose A. dan Saurina, Jesús. (2007). How does competition impact bank risk-taking? Working Paper of Federal Reserve Bank of San Fransisco, 23 (September), 1-37.
http://www.frbsf.org/publications/economics/papers/2007/wp07-23bk.pdf
Jiménez, Gabriel, Lopez, Jose A. dan Saurina, Jesús, “How does competition affect bank risk-taking?”. Journal of Financial Stability, 2013, 9(2), hal. 185-195, doi: http://dx.doi.org/10.1016/j.jfs.2013.02.004
Kasman, Adnan “Consolidation and competition in the banking industries of the EU member and candidate countries”. Emerging Markets Finance and Trade, 2010, 46(6), hal. 121-139,
doi: 10.2753/REE1540-496X460608
Keeley, Michael C., “Deposit Insurance, Risk, and Market Power in Banking”. The American Economic Review, 1990, 80(5), hal. 1183-1200, doi: 10.2307/2006769
Laeven, Luc, (2005), Banking Sector Performance in East Asian Countries: The Effects of Competition, Diversification, and Ownership, Washington D.C.: World Bank
Liu, Hong, Molyneux, P. dan Wilson, John O.S., “Competition and Stability in European Banking: A Regional Analysis”. The Manchester School, 2013, 81(2), hal. 176-201, doi:
10.1111/j.1467-9957.2011.02285.x
Margono, Heru, Sharma, Subhash C. dan Melvin Ii, Paul D., “Cost efficiency, economies of scale, technological progress and productivity in Indonesian banks”. Journal of Asian Economics,
2010, 21(1), hal. 53-65, doi: http://dx.doi.org/10.1016/j.asieco.2009.06.001
Matutes, Carmen dan Vives, Xavier, “Imperfect competition, risk taking, and regulation in banking”. European Economic Review, 2000, 44(1), hal. 1-34, doi: http://dx.doi.org/10.1016/S0014-2921(98)00057-9
Mishkin, Frederic S. , “Understanding financial crises: A developing country perspective”. NBER Working Paper Series, 1996, 5600(May), hal. 1-49
Nasution, Anwar. (2000). The financial crisis in Indonesia. In S. Masuyama, D. Vandenbrink & C. S. Yue (Eds.), East Asia’s financial systems: Evolution and crisis (pp. 370). Singapore:
Institute of Souteast Asian Studies Publishing.
Pangestu, Mari, “The Indonesian Bank Crisis and Restructuring: Lessons and Implications for other Developing Countries”. G-24 Discussion Paper Series of United Nations Conference on Trade and Development, 2003, 23 (November), hal. 1-36
Pradiptyo, Rimawan, Rokhim, Rofikoh, Gumilang Aryo, Sahadewa, Ulpah, Maria, Sasmitasiwi, Banoon dan Faradynawati. (2011). A bridge too far: the strive to establish a financial service
regulatory authority (OJK) in Indonesia. Retrieved from SSRN website: http://ssrn.com/
abstract=1878565 doi:http://dx.doi.org/10.2139/ssrn.1878565
Rosengard, Jay K. dan Prasetyantoko, A., “If the Banks are Doing So Well, Why Can’t I Get a Loan? Regulatory Constraints to Financial Inclusion in Indonesia”. Asian Economic Policy
Review, 2011, 6(2), hal. 273-296, doi: 10.1111/j.1748-3131.2011.01205.x
Rosser, Andrew (2002), The Politics of Economic Liberalisation in Indonesia: State, Market and Power, Oxon, UK: Routledge.
Rosul, Mochammad. (2002). The Capital Market in Indonesia’s Economy: Development and Prospect. http://www.nomurafoundation.or.jp/en/capital/archive/
Schaeck, Klaus dan Cihak, Martin, “Banking Competition and Capital Ratios”. Working Paper of International Monetary Fund, 2007, 07(216), hal. 1-42
Smirlock, Michael, Gilligan, Thomas dan William, Marshall, “Tobin’s q and the StructurePerformance Relationship”. The American Economic Review, 1984, 74(5), hal. 1051-
1060
Soedarmono, Wahyoe, Machrouh, Fouad dan Tarazi, Amine, “Bank market power, economic growth and financial stability: Evidence from Asian banks”. Journal of Asian Economics,
2011, 22(6), hal. 460-470, doi: http://dx.doi.org/10.1016/j.asieco.2011.08.003
Turk Ariss, Rima, “On the implications of market power in banking: Evidence from developing countries”. Journal of Banking & Finance, 2010, 34(4), hal. 765-775, doi: http://dx.doi.
org/10.1016/j.jbankfin.2009.09.004
Vennet, Rudi Vander, “Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe”. Journal of Money, Credit and Banking, 2002, 34 (1), hal. 254-282, doi:
10.2307/3270685
World Bank. (2013). Global Financial Development Report. Rethinking the Role of State in Finance. Retrieved from econ.worldbank.org website: http://econ.worldbank.org/
Yeyati, Eduardo Levy dan Micco, Alejandro, “Concentration and foreign penetration in Latin American banking sectors: Impact on competition and risk”. Journal of Banking & Finance,
2007, 31 (6), hal. 1633-1647, doi:http://dx.doi.org/10.1016/j.jbankfin.2006.11.003
Published
2016-03-31
How to Cite
Mulyaningsih, T., Daly, A., & Miranti, R. (2016). NEXUS OF COMPETITION AND STABILITY: CASE OF BANKING IN INDONESIA. Buletin Ekonomi Moneter Dan Perbankan, 18(3), 333-350. https://doi.org/10.21098/bemp.v18i3.555
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
