Merging banks in time of crisis

During the peak of the crisis but also in the aftermath, it has been argued that there is a trade-off between competition and financial stability. Financial entities in distress have incentives to incur excessive risks and must be restrained in this tendency that characterises them. Competition and prudential regulation are both aiming at ensuring that financial markets will work effectively, and financial stability will be ensured. The premise behind the analysis presented herein is that competition authorities should be pragmatic in identifying and responding to instances where financial stability has to take priority in relation to competition policy. The article does not purport to argue though that competition policy should in general be set aside at times of financial crisis.