Competition and fragility in the Turkish banking system

Banking sector is the most important constituent which does the func-tion of financial mediation within the financial system. The financial system is the one that the governmental bodies imply heavy regulations in comparison with the other sectors. The banks are trying to maintain their activities under those regulations. The ever-growing banking sector has the biggest share in the financial system. The economy is affected greatly by this sector if it has an effective and productive market structure. As a result of the regulations made in the banking sector after the 2001 crisis, while the condensation has risen due to the introduction of new foreign supported banks into the system, the brokerage function and variety of finan-cial instruments within the sector has also risen. These developments has strenghtened the competitive tendencies on the basis of product and service. The priority of the government during the financial crisis is to turn the financial markets back to their normal process and to re-establish the stability. To fulfill this purpose, some measures are taken by interfering the markets. Crises may cause the purpose of protection of rivalies to be ignored and the purpose of rivaliry protection to be sacrificed by giving priority to financial stability because crises are also the periods in which the duality of competi-tion-stability is highly anticipated. It is possible to expect that the idea of the rivalry in banking will lower the stability is weakened and competition policy is consolidated will affect the implementation of banking rivalry policies during the financial crises. It is a fact that the level of rivalry in Turkish Banking Sector should be enhanced so that the chance of fragility and crisis can be lowered. In a world where the banking scales are getting bigger, it is impossible to establish more high-scale banks by using national resources. Instead, it would be better if low and middle-scale banks' assets are protected and the introduction of new banks to the system is encouraged. In this research, panel data and panel logit models are used to analyse the co-relation between competition and fragility in Turkish Banking System. The result of the analysis shows a negative co-relation between competition and fragility in Turkish Banking System. Keywords: Banking System, Competition, Fragility, Panel Data and Panel Logit