MARKET POWER AND BANKING FAILURE IN WAEMU ZONE: AN EMPIRICAL STUDY THROUGH GMM ESTIMATOR
Keywords:
Market power, Default risk, GMM, WAEMU.Abstract
This paper examines the relationship between market power and default risk for WAEMU banks. We use a dataset of 72 WAEMU banks from 2013 to 2020. The econometric results, after applying the system GMM estimator of Blundell and Bond (1998), indicate that bank concentration increases bank default risk. However, the test of non-linearity, through the introduction of the quadratic term of the concentration measure into the model, shows that above the 83% concentration threshold, an increase in market power could be favorable to banking stability. This study, therefore, recommends that monetary authorities exercise caution in their efforts to promote competition.
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