The banking sector is a highly regulated and very protected sector to prevent crises that can cause enormous economic damage. A hotly debated topic in the history of financial systems is whether competition is good or bad for financial stability. It is complex and difficult to know which side is right. Almost everyone with an opinion at least admits that there are good points for both sides. All the arguments go both ways and the evidence is mixed. History can prove both sides of the issue to be true. It's easy to see an example where a country had X banks and Y crises and assume causality, but it's rarely that simple. Experiences from other countries may show exactly opposite results. The key is finding the right balance. There is a very broad spectrum of possibilities regarding the relationship between competition and financial stability. For a long time, it was commonly thought that competition made the financial system less stable. Therefore, regulators have restricted competition in many countries. The Great Depression caused the end of most standard competition policies in the banking industry in order to promote fiscal stability. It was successful but stifled development and placed a burden on customers. This caused a correction towards deregulation, which added more competition but low stability and many crises (Beck, 2010). The recent financial crises have reopened the debate. There are many other factors that can influence financial stability, such as the structure of financing, the institutional and regulatory environment, the regulatory framework in which banks operate and which establishes their incentives for risk taking, and probably others not yet made. An important factor that many people look at is the willingness to risk taken by the owners... middle of paper... the structure of the market and the limitation of competition. This could be uncomfortable and have unwanted side effects. The challenge is to maintain competition for the benefits it will bring to the entire economy, while creating an administrative structure that minimizes the negative consequences it may have for stability. Thorsten Beck writes that “together [the banking regulatory rules] would constitute the so-called “safety net”… The safety net consists of: banking supervision, deposit insurance (explicit or implicit), capital requirements, lender of last resort, banking crisis resolution (private solutions, bailouts and bank closure policies)” (Beck, 2010). Administrative change can equip powers with better tools to deal with failing banks at a later date, and thus reduce negative impacts on the rest of the financial framework.