The Non-Linear Relationship Between Macroprudential Policies and Bank Competition: Evidence from Selected EMDEs

The nexus between macroprudential regulation and bank competition continues to generate considerable policy debate. Therefore, the study investigates the potential non-linear relationship between macroprudential policies and bank competition using data from 56 emerging market and developing economies (EMDEs) over 2000–2022. Applying a dynamic common correlated effects (DCCE) framework, we investigate how credit, capital, liquidity, and tax-based macroprudential policy measures affect bank competition across financial cycles, institutional quality, and macroeconomic contexts. Findings reveal an inverted U-shaped relationship: moderate MaPP tightening enhances bank competition, whereas excessive tightening strengthens market power. Findings further indicate that the dynamics between macroprudential policies and bank competition are primarily influenced by financial structure, monetary policy stance, regulatory quality, and crisis episodes.