The Competition-Stability Nexus Under Macroeconomic Uncertainty: Differentiated Moderating Roles of Institutions and Innovation in Asean

Abstract

This study examines how bank market power, macroeconomic uncertainty, the technology-enabled financial environment, and institutional quality are associated with bank stability in ASEAN. Using an unbalanced panel of 60 commercial banks across five ASEAN economies from 2010 to 2023, the study adopts a layered empirical design combining multilevel estimation, nonlinear analysis, and exploratory heterogeneous-effect analysis. The results reveal three main findings. First, higher Lerner Index values, indicating greater market power and lower competitive pressure, are positively associated with bank stability in the linear specifications. The threshold and smooth-transition estimates suggest possible nonlinear variation, although they do not establish a statistically validated optimal competition threshold. Second, macroeconomic uncertainty is consistently associated with weaker financial stability, reflecting heightened information frictions, constrained credit allocation, and greater exposure to shocks. Third, the moderating effects are asymmetric: traditional institutional quality mainly strengthens stability through its conditional moderating role, digital institutional development is associated with weaker stability outcomes, and technology-enabled financial infrastructure exhibits mixed rather than uniformly risk-enhancing relationships. These findings extend the competition-stability literature by advancing the Competition-Uncertainty-Innovation-Institutions framework and demonstrating that financial stability depends on the interaction between market structure and the broader institutional, technological, and macroeconomic environment. The policy implications emphasize calibrated competition policy, stronger uncertainty management, and closer alignment between digital transformation, supervisory capacity, and institutional governance.