The Relationship between Regulation and Market Structure in the Turkish Banking Sector: Panel Data AMG Analysis

Abstract

Purpose – Regulation, which is an interdisciplinary concept such as economic, social, political, administrative and global, is when an authority imposes a set of rules, sanctions and practices for relevant sectors or markets in case of a problem in the market mechanism. The banking system, has a large and important share in Turkey's economic and financial structure, continues its activities as one of the sectors where regulations are carried out intensively.The aim of the study is to measure the effects of regulations on market structure in the banking sector is also the focus of empirical analysis.

Design/methodology/approach –  In this study, using panel data regression analysis, the regulation index and other balance sheet items created for the Turkish banking sector for the period of 2000-2018 were used as variables for the purpose of the study. The effects of regulations on the market structure of the Turkish banking sector has been analyzed by carrying out a panel data analysis with equations established using the Augmented Mean Group (AMG) estimator.

Findings –  It is observed that the regulations made by relevant institutions and legal ratios in the period of 2000-2018 had an increasing effect on the competition in the Turkish banking sector.

Discussion –  In case of imperfect information conditions in the banking sector, it is foreseen that the regulations may have difficulties in both reducing costs and transferring the gains obtained in this way to consumers. It is suggested in the study that the regulations applied in the banking sector can work more competitively and close to full information conditions, with the effect of increasing competition. In addition, it is likely that the regulations will bring the market closer to the level of perfect competition by increasing the level of competition towards the banking sector.