Market structure and bank stability: Comparison between conventional and islamic banks in Indonesia

The purpose of this study is to examine the effect of bank competition on banking industry stability in sharia and conventional banks in Indonesia from 2011 to 2015. Panzar Rosse H-statistic model was used to measure the level of bank competition and the Z-score as a measure of banking stability. The results of this study indicate that both bank competition and stability had a positive relationship. The Islamic and conventional banking industry in Indonesia support the competition stability theory, which states that a competitive industry encourages bank stability because of low adverse selection and moral hazard. The results of this study also show that conventional banks had greater stability consistently than Islamic banks for all bank groups.