Do Positive Bank Concentration Shocks Impact Economic Growth in South Africa?
Evidence shows that GDP declines to positive bank concentration shocks. In addition, evidence from the counterfactual analysis shows that actual GDP declines more than the counterfactual suggests. The decline is accentuated by the slowdown in investment, reduction in employment, increased unemployment and reduced credit growth due to the unexpected increase in bank concentration. Therefore, it is important for policymakers to lower the entry barriers and introduce a sliding scale of capital adequacy ratios that rise with the size of the banks.