CBA Analysis no. 2

Croatia is positioned below the EU average in terms of concentration in banking within a reference group of “small” European countries. Concentration in banking in Croatia is below the expected value considering the following factors: the level of economic development and the size of the country, which both have an adverse effect on concentration (higher income implies lower concentration; concentration is higher in smaller countries).

Globalization and technological innovations will continue to stimulate concentration in banking, especially within the EU, where a single financial market is yet to start operating, overcoming the barriers of national markets. Changes in the European market will continue to represent a challenge to domestic regulators and financial policy makers. In spite of theoretical assumptions, according to which a higher degree of concentration results from lower competition, this analysis, like many others, has not found a strong correlation between concentration and competition. This means that individual cases of concentration in banking (mergers and acquisitions) should not be judged by simple “macro rules”, such as critical value thresholds of concentration indices.

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