The international imperfect banking systems: the Israeli case

Abstract

Purpose

The banking system has a huge impact on a nation's economic environment. A concentrated banking system has a negative impact on the economy. Therefore, the research in this paper has two main goals: to explore the main factors that impact the level of concentration in the banking system; and to demonstrate how a reform in a banking system can reduce the negative impact of high levels of concentration.

Design/methodology/approach

A sample of 42 nations was used with various levels of concentration in their banking system to examine factors influencing bank concentration. Logit and OLS regressions were conducted to highlight the impact of the independent variables on the level of concentration in those nations. The latest Israeli reforms in the banking system were used to illustrate how reforms reduce concentration.

Findings

The empirical results concluded that economic freedom had a positive impact on the level of concentration. It was also found that cultural variables had an impact on the concentration level. Finally, analyzing the banking sector in Israel, it was found that the reform did decrease the level of concentration of the banking system.

Originality/value

The innovation of this paper is that it adds Hofstede's cultural variables as explanatory variables for the level of concentration in the banking system. It also highlights the role of public regulation for achieving efficiency in the banking sector by using the example of Israeli banking reforms.

Citation

Malul, M., Shoham, A. and Rosenboim, M. (2009), "The international imperfect banking systems: the Israeli case", EuroMed Journal of Business, Vol. 4 No. 2, pp. 159-172. https://doi.org/10.1108/14502190910976510