The Relationship between Financial Stability and Concentration in Iran's Banking System

This paper examines the relationship between financial stability and macroeconomics variables and banking concentration in Iranian banking system for the period 1385-1393 (2006-2014).
In this study, Herfindal-Hirschman index (HHI) as a concenteration index and inverted non-performing loans ratio are used to measure banking concentration and financial stability respectively. In addition, inflation rate, GDP growth rate, bank lending rate and market share are considered as macroeconomics variables. In order to estimate the relationship, a balanced dynamic panel with generalized method of moments (GMM) is used. The result indicates that the banking concentration,inflation, GDP growth rate, interest rate and market share has a statistically significant impact on non-performing loans and therefore on the Bank's financial stability.