On measuring concentration in banking systems

Alegria, Carlos and Schaeck, Klaus (2008) On measuring concentration in banking systems. Finance Research Letters, 5 (1). pp. 59-67. ISSN 1544-6123

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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.

Item Type:
Journal Article
Journal or Publication Title:
Finance Research Letters
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Date of Acceptance: 10/12/2007
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18 Jun 2015 05:39
Last Modified:
22 Nov 2022 01:42