Financial regulation and determinants of bank performance and concentration in Brazil: an econometric analysis for the period 2000-2017

Abstract

The article aims to identify the role of government regulation for the profitability and market structure of financial institutions. For this purpose, panel data models are estimated, involving all banks that operated with a commercial portfolio between 2000 and 2017. The results show that the variables directly related to regulation are not statistically significant for banking performance. In this context, the variables related to banking concentration and the efficiency of firms in the sector are significant for bank profitability. Regarding the market structure, variables related to regulation, such as “participation in the volume of earmarked credit” and “relevant regulations”, with the potential to generate barriers to entry, are statistically significant, positively impacting the concentration levels of the sector. The results found suggest that, despite not directly affecting the sector’s profitability, regulation indirectly interferes in this aspect, contributing to greater market concentration.