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On measuring concentration in banking systems

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>1/03/2008
<mark>Journal</mark>Finance Research Letters
Issue number1
Volume5
Number of pages8
Pages (from-to)59-67
Publication statusPublished
Early online date15/12/07
Original languageEnglish

Abstract

Assuming a Pareto-type distribution of bank sizes, we investigate the effect of changes in Zipf's exponent (α) and the sample size on the behavior of different concentration indices, such as the 3-bank concentration ratio, the Herfindahl–Hirschman index and the top 5%-concentration ratio. We derive analytical relations between these concentration indices and investigate the elasticity of these indices to changes in α and in the sample size N. We show different regimes under which each index can be used most appropriately. Our results are highly relevant for policymakers who rely on such concentration measures to derive public policy recommendations in banking.

Bibliographic note

Date of Acceptance: 10/12/2007