Legislation on combating unfair competition acts among joint stock commercial banks in vietnam

MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF LAW THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS  TRAN THUY NGAN LEGISLATION ON COMBATING UNFAIR COMPETITION ACTS AMONG JOINT-STOCK COMMERCIAL BANKS IN VIETNAM BACHELOR THESIS In partial fulfillment of the BACHELOR OF LAWS HO CHI MINH CITY - AUGUST 2014 HO CHI MINH CITY UNIVERSITY OF LAW THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS  BACHELOR THESIS FORMAL EDUCATION TRAINING COURSE 35 (2010 – 2014) LEGISLATION ON COMBATING UNFAIR COMPETITION ACTS AMONG JOINT-STOCK COMMERCIAL BANKS IN VIETNAM AUTHOR COURSE STUDENT CODE SUPERVISOR : TRAN THUY NGAN : 35TH : 1055010171 : PhD PHAN THI THANH DUONG HO CHI MINH CITY – AUGUST 2014 DECLARATION I hereby declare that the thesis “Legislation on combating unfair competition acts among joint-stock commercial banks in Vietnam” is my own study under the supervisor’s guidance and to the best of my knowledge, it contains no material previously published or written by another person, nor material which to a substantial extent has been excepted for the award of any other degree or diploma at any educational institution, except where due acknowledgement is made in the thesis All of the information other than my idea to be used or quoted has been acknowledged by means of complete references I would bear full responsibility for my protest I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party July 22nd, 2014 Tran Thuy Ngan LIST OF ABRREVIATIONS The following table describes the significance of various abbreviations used throughout the Thesis Abbreviation : Meaning CAR(s) : Capital Adequacy Ratio(s) JSCB(s) : Joint-stock commercial bank(s) MIT OECD : Ministry of Industry and Trade of the Socialist Republic of Vietnam : Organization for Economic Cooperation and Development SBV : State Bank of Vietnam SOCB(s) : State-owned commercial bank(s) VCA : Vietnam Competition Authority TABLE OF CONTENTS TABLE OF AUTHORITIES I INTRODUCTION .1 THE RATIONALE OF THESIS LITERATURE REVIEWS OF RESEARCH .2 2.1 Former studies in Ho Chi Minh City University of Law .2 2.2 Former studies of other scholars from different academic agencies 2.3 Summary THE PURPOSE AND RESPECTIVE FUNCTIONS OF THE THESIS THE DELIMITATIONS AND RESEARCH OBJECT OF THE THESIS 4.1 Delimitations of the Thesis 4.2 The research object of the Thesis THE METHODOLOGY OF THE THESIS THE CONTRIBUTION OF THE THESIS THE STRUCTURE OF THE THESIS CHAPTER 1: THEORY ON UNFAIR COMPETITION ACTS AMONG JSCBS 1.1 THE CONCEPT OF UNFAIR COMPETITION AND ITS PERFORMANCE IN BANKING OPERATIONS .7 1.1.1 General definition and characteristics of unfair competition 1.1.1.1 Unfair competition is a problem of competition 1.1.1.2 Definition and characteristics of unfair competition 1.1.2 Unfair competition in banking sector 10 1.1.3 The risk of unfair competition from banks’ activities, especially those from JSCBs 13 1.1.3.1 From general perspective 13 1.1.3.2 To Vietnam’s current status of JSCBs and the risk to commit unfair competition 15 1.2 THE CAUSES AND CONSEQUENCES OF UNFAIR COMPETITION ACTS OF THE JSCBS 17 1.2.1 The causes of unfair competition acts of JSCBs 17 1.2.1.1 The objective causes of unfair competition acts .17 1.2.1.2 The subjective causes of unfair competition acts .20 1.2.2 The consequences of unfair competition acts of JSCBs 22 1.2.2.1 The consequences of unfair competition acts to the economy and society 22 1.2.2.2 The consequences of unfair competition acts to the customers 22 1.2.2.3 The consequences of unfair competition acts to other participants in Vietnam’s banking system 23 1.3 SUB-CONCLUSION OF CHAPTER 23 CHAPTER 2: LEGISLATION ON COMBATING UNFAIR COMPETITION ACTS AMONG JSCBS IN VIETNAM 24 2.1 MAJOR CONTENTS OF LAWS AND REGULATIONS ON COMBATING UNFAIR COMPETITION ACTS AMONG JSCBS IN VIETNAM 24 2.1.1 The legislative history 24 2.1.2 General introduction on current effective laws and regulations on combating unfair competition acts among JSCBs 25 2.1.2.1 The scope of effect 25 2.1.2.2 Current provisions restraining unfair competition acts in banking operations among JSCBs .26 2.1.2.3 Legal sanctions for unfair competition acts in banking operations among JSCBs 33 2.1.3 Typical unfair competition acts among JSCBs in Vietnam 37 2.1.3.1 Provision of misleading information threaten to harm or harm the other JSCBs 37 2.1.3.2 Infringement upon trade/business secrets 37 2.1.3.3 Constraint in business between JSCBs .38 2.1.3.4 Discrediting other JSCBs 40 2.1.3.5 Advertising for the purpose of unfair competition of JSCBs 41 2.1.3.6 Abuse the interest rate mechanism in competition 41 2.1.3.7 Sale promotion for the purpose of unfair competition 42 2.2 IMPLEMENTATION OF LEGISLATION TO COMBATING UNFAIR COMPETITION ACTS AMONG JSCBS AND RESPECTIVE RECOMMENDATIONS 43 2.2.1 The achievements of implementation of legislation 43 2.2.1.1 Strengthening state management on the financial market 43 2.2.1.2 Stringent protection of the customers’ welfare 44 2.2.1.3 Fair competition promotes upgraded stability of banking system 44 2.2.2 Typical shortcomings of current laws and regulations relating to unfair competition acts of JSCBs 45 2.2.2.1 Lack of specific regulations or principles for identifying unfair competition acts of JSCBs 45 2.2.2.2 Inappropriate sanctions in consideration of characteristics of banks’ operations 46 2.2.2.3 Lack of coordination between the competent authorities in the management and processing breaches in the field of competition between JSCBs 47 2.2.3 Respective recommendations 48 2.2.3.1 The urgent need to promulgate legal guideline to identify current unfair competition acts of banks 48 2.2.3.2 The assessment and adjustment current system of legal sanctions for breach of provisions on combating unfair competition 49 2.2.3.3 Inter-agency coordination between the Banking Supervision Agency and VCA 51 2.3 SUB-CONCLUSION OF CHAPTER 52 CONCLUSION 53 BIBLIOGRAPHY V ANNEX X A LIST OF JSCBS IN VIETNAM (UPDATED TO DECEMBER 31ST, 2013) X B STATISTICS RELATING TO UNFAIR COMPETITION DURING 2006-2012 XVI Table 1: Statistics of unfair competition cases during 2006-2012 (Source: Annual Report of VCA in 2012) xvi Table 2: Statistics of unfair competition cases’ fines and fees during 20062012 (Source: Annual Report of VCA in 2012) xvi Figure 1: Statistics of unfair competition cases’ fines and fees during 20062012 (Source: Annual Report of VCA in 2012) xvi C STATISTICS RELATING TO THE MATTER OF HUMAN RESOURCES’ QUALITY IN VIETNAM XVII Table 3: Occupational structure of the labour force in Vietnam during 20012011 (Source: Ministry of Labour, Invalids and Social Affairs, Survey on labour and employment, 2001, 2005, 2006; General Statistics Office, Report on survey on labour and employment, 2010 and 2011) xvii Figure 2: Structure of human capital in Vietnam (Source: OECD, performing the statistic provided by General Statistics Office (2008, 2009, 2010, 2011); Ministry of Labour, Invalids and Social Affairs (2006, 2007)) xvii Figure 3: Banking sector headcount (Source: KPMG, Vietnam Banking Survey 2013) xviii Figure 4: Share of credit to the economy by group of credit institutions and total credit to GDP in Vietnam (Source: OECD, calculation on the statistics provided by the SBV) xix Table 4: Key indicators of selected Vietnam JSCBs (Source: Standard and Poors) xx Figure 5: Asset composition of Vietnam's commercial banks in December 32st, 2012 (Source: KPMG, Vietnam Banking Survey 2013) xx Figure 6: Net interest margin in commercial banks between 2011 and 2012 (Source: KPMG, Vietnam Banking Survey 2013) xxi Figure 7: The non-performance loan rates in each commercial bank (Source: KPMG, Vietnam Banking Survey 2013) xxi D DEMONSTRATION OF FINANCIAL CONTAGION APPLICABLE TO RESPECTIVE INTERBANK LINKAGES (SOURCE: FRANKLIN ALLEN & DOUGLAS GALE (2000), "FINANCIAL CONTAGION”, JOURNAL OF POLITICAL ECONOMY, UNIVERSITY OF CHICAGO PRESS, VOLUME 108, NUMBER 01, PP 1-33) XXII TABLE OF AUTHORITIES A VIETNAMESE LAWS Code No 33/2005/QH11 (passed by the XIth National Assembly of the Socialist Republic of Vietnam at its 07th Session on June 14th, 2005) provides the legal status, legal standards for the conduct of individuals, legal entities, other subjects; the rights and obligations of subjects regarding personal identities and property in civil, marriage and family, business, trade, labor relations (hereinafter referred collectively to as civil relations) Short citation: Civil Code 2005 Law No 21/2004/QH11 (passed by the XIth National Assembly of the Socialist Republic of Vietnam at its 05th Session on June 15th, 2004) provides for bankruptcy of enterprises, cooperatives Short citation: Law on Bankruptcy 2004 Law No 27/2004/QH11 (passed by the XIth National Assembly of the Socialist Republic of Vietnam at its 06th Session on December 03rd, 2004) provides for competition Short citation: Law on Competition 2004 Law No 02/1997/QH10 (passed by the Xth National Assembly of the Socialist Republic of Vietnam on December 12th, 1997) provided for the organization and operation of credit institutions and banking activities conducted by other organizations In 2004, number of its articles were revised by Law No 20/2004/QH11 (passed by the XIth National Assembly of the Socialist Republic of Vietnam on June 24th, 2004) Short citation: Law on Credit Institution 1997 (revised in 2004) Law No 47/2010/QH12 (passed by the XIIth National Assembly of the Socialist Republic of Vietnam on June 16th, 2010) provides for the establishment, organization, operation, special control, reorganization and dissolution of credit institutions; and the establishment, organization and operation of foreign bank branches and representative offices of foreign credit institutions and other foreign institutions engaged in banking operations This Law takes effect on October 01st, 2011 and Law on Credit Institution 1997 (revised 2004) ceases to be effective on the effective day of this Law Short citation: Law on Credit Institutions 2010 Law No 15/2012/QH13 (passed by the XIIIth National Assembly of Socialist Republic of Vietnam on June 20th, 2012) provides the sanctioning of administrative violations and administrative handling measures Short citation: Law on Handling Administrative Violations 2012 [i] Law No 46/2010/QH12 (passed by the XIIth National Assembly of Socialist Republic of Vietnam on June 16th, 2010) provides for the organization and operation of the SBV Short citation: Law on the SBV 2010 Code No 15/1999/QH10 (passed by the Xth National Assembly of Socialist Republic of Vietnam on December 21st, 1999) provides for crimes and the penalties for offenders Since 2009, this Code has been amended and supplemented by Law No 37/2009/QH12 (passed by the XIIth National Assembly on June 19th, 2009) Short citation: Penal Code 1999 (revised in 2009) B VIETNAMESE REGULATIONS Circular No 03/2007/TT-NHNN dated June 05th, 2007 of the SBV guides the implementation of several articles of the Decree No 22/2206/ND-CP of the Government on the organization and operation of foreign bank branches, joint venture banks, 100% foreign own banks, representative office of foreign credit institutions in Vietnam Circular No 13/2010/TT-NHNN dated May 20th, 2010 of the SBV stipulates prudential ratios in operations of credit institutions Circular No 40/2011/TT-NHNN dated December 15th, 2011 of the SBV regulates on licensing and organizations, operations of commercial banks, foreign bank branches, representative offices of credit institutions and other foreign organizations with banking operations in Vietnam From February 01st, 2012 (its effective day), several terms and conditions under Circular No 03/2007/TT-NHNN became expired Circular No 02/2013/TT-NHNN dated January 21st, 2013 of the SBV provides on classification of assets, levels and method of setting up of risk provisions, and use of provisions against credit risks in the banking activity of credit institutions, foreign banks' branches Decision No 17/2008/QD-NHNN dated May 16th, 2008 of the SBV stipulates the provision of information on interest rates for determining the prime interest rate Decision No 1073/QD-NHNN dated May 10th, 2013 of the SBV provides the refinancing interest rate, the discounting rate, and the overnight rate in the interbank electronic payment and the rate of loans to finance short balances in clearing transactions between the SBV and commercial banks Decision No 1130/2005/QD-NHNN dated August 01st, 2005 of the SBV amends and supplements a number of articles of the Regulation on reserve requirements applicable to credit institutions, issued together with Decision No 581/2003/QD-NHNN dated June 9th, 2003, of the SBV's Governor [ii] 34 www.mckinsey.com 35 www.oecd.org [ix] ANNEX A List of JSCBs in Vietnam (updated to December 31st, 2013) NO NAME OF JSCB ADDRESS BRANCHES LICENSE NO CHARTER TRANSACTION DATE OF ISSUE CAPITAL OFFICES Joint Stock 198 Tran Commercial Bank for Quang Khai, 286/QD-NH5 Foreign Trade of Hoan Kiem, dated 21/9/1996 Vietnam Hanoi (Vietcombank) 23.174 80 108 Tran Hung Dao, 142/GP-NHNN Hoan Kiem, dated 03/7/2009 Hanoi 37.234 152 84/GP-NHNN dated 23/4/2012 23.011 120 769/TTg dated18/9/1997 3.369 10 0001/NHGP dated 08/6/1991 8.000 45 0006/NHGP dated 05/12/1991 10.740 72 5.000 50 Vietnam Bank for Industry and Trade (Vietinbank) Joint Stock Commercial Bank 35 Hang Voi, for Investment and Hoan Kiem, Development of Hanoi Vietnam (BIDV) 09 Vo Van Housing Bank of Tan, District Mekong Delta 03, Ho Chi (MHB) Minh Vietnam Maritime Commercial Joint 88 Lang Ha, Stock Bank Hanoi (MSB) 266-268 Nam Ky Khoi Sai Gon Thuong Tin Nghia, Bank District 03, (Sacombank) Ho Chi Minh City Dong A Joint Stock Commercial Bank (EAB) 130 Phan Dang Luu, 0009/NHGP Phu Nhuan dated 27/3/1992 District, Ho [x] Chi Minh City 72 Le Thanh Ton and 47 Vietnam Export Ly Tu Trong, Import Commercial Ben Nghe 0011/NHGP Joint-Stock Bank Ward, dated 06/4/1992 (Vietnam Eximbank) District 01, Ho Chi Minh City 12.355 42 201-203 Cach mang Nam A Commercial thang 8, 0026/NHGP Joint Stock Bank Ward 04, dated 22/8/1992 (NamA Bank) District 03, Ho Chi Minh City 3.000 14 10 Asia Commercial Joint Stock Bank (ACB) 442 Nguyen Thi Minh 0032/NHGP Khai, District dated 24/4/1993 03, Ho Chi Minh City 9.377 81 Saigon Bank for Industry & Trade (Saigon Bank) 2C Pho Duc Chinh, 0034/ NHGP District 1, Ho dated 04/5/1993 Chi Minh City 3040 33 72 Tran Hung Dao, 0042/ NHGP Hoan dated 12/8/1993 Kiem, Hanoi 5.770 45 191 Ba Trieu, 0040/ NHGP Hai Ba dated 06/8/1993 Trung, Hanoi 8.788 62 21 Cat Linh, 0054/ NHGP Dong Da, dated 14/9/1994 Hanoi 10.625 63 11 Vietnam Commercial Joint Stock Bank for 12 Private Enterprise (VPBank) Viet Nam Technological and 13 Commercial JointStock Bank (Techcombank) Military Commercial 14 Joint-Stock Bank (MB) [xi] 15 117 Quang 0052/NHGP BACA Commercial Trung, Vinh dated 01/9/1994 Joint-Stock Bank City, Nghe 183/QĐ-NH5 (BacA Bank) An Province dated 01/9/1994 Vietnam International Commercial Joint 16 Stock Bank (VIB) Southeast Asia Commercial Joint 17 Stock Bank (SeABank) 18 19 20 21 22 Housing Development Commercial Joint Stock Bank (HDBank) 16 Phan Chu Trinh, Hoan Kiem, Hanoi 25 Tran Hung Dao, Hoan Kiem, Hanoi 25 Bis Nguyen Thi Minh Khai, Da Kao Ward, District 1, Ho Chi Minh City (07/4/2011) 279 Ly Southern Commercial Thuong Kiet, Joint Stock Bank District 11, (Southern Bank) Ho Chi Minh City 112-114-116118 Hai Ba Viet Capital Trung, Da Commercial Joint Kao Ward, Stock Bank District 01, (Viet Capital Bank) Ho Chi Minh City 45 Le Duan, Orient Commercial District 01, Joint Stock Bank Ho Chi Minh (OCB) City Sai Gon Commercial 927 Tran Bank Hung Dao, 3.000 18 0060/ NHGP dated 25/01/1996 4.250 49 0051/ NHGP dated 25/3/1994 5.465 35 0019/ NHGP dated 06/6/1992 8.100 49 0030/ NHGP dated 17/3/1993 4.000 35 0025/ NHGP dated 22/8/1992 3.000 16 0061/ NHGP dated 13/4/1996 3.000 25 238/GP-NHNN dated 10.583 47 [xii] (SCB) 23 24 25 26 27 28 29 District 05, 26/12/2011 Ho Chi Minh City 119-121 Viet A Joint Stock Nguyen Cong 12/ NHGP Commercial Bank Tru, District dated 09/5/2003 (VAB) 01, Ho Chi Minh City 0041/NH-GP Saigon77 Tran dated Hanoi Commercial Hung Dao, 13/11/1993 Joint Stock Bank Hoan Kiem, 93/QĐ-NHNN (SHB) Hanoi dated 20/01/2006 109 Tran 0043/NH-GP Hung Dao, dated13/11/1993 Cua Nam 31/QĐ-NHNN Ward, Hoan dated Kiem, Hanoi 11/01/2006 170 Hai Ba Trung, Da 0031/NH-GP An Binh Commercial Kao Ward, dated 15/4/1993 Joint Stock Bank District 01, 77/QĐ-NH5 (ABBank) Ho Chi Minh dated 15/4/1993 City 3, 3A, National Citizen Suong 0057/ NHGP Bank Nguyet Anh, dated 18/9/1995 (NCB, used to be District 01, 970/QĐ-NHNN Navibank) Ho Chi Minh dated 18/5/2006 City 16-18 Pham 0056/NH-GP Kien Long Hong Thai, dated 18/9/1995 Commercial Joint Rach Gia 2434/QĐStock Bank City, Kien NHNN (Kien Long Bank) Giang dated Province 25/12/2006 Viet Nam Thuong Tin 47 Tran 2399/QĐCommercial Joint Hung Dao, NHNN Global Petro Commercial Joint Stock Bank (GP Bank) [xiii] 3.098 17 8.865 52 3.000 13 4.797 30 3.010 20 3.000 23 3.000 10 Stock Bank (Vietbank) Soc Trang City, Soc Trang Province dated 15/12/2006 199 Nguyen 0048/ NHGP Luong Bang, dated OCEAN Commercial Hai Duong 30/12/1993 30 Joint Stock Bank City, Hai 257/QĐ-NHNN (Ocean Bank) Duong dated Province 30/12/1993 4.000 21 0045/ NHGP 229 Tay Son, dated Nga Tu So 13/11/1993 Ward, Dong 125/QĐ-NHNN Da, Hanoi dated 12/01/2007 3.000 16 145-147-149 0047/ NHGP Hung Vuong, dated Vietnam Construction Ward 02, Tan 29/12/1993 32 Joint Stock Bank An Town, 1931/QĐ(VNCB) Long An NHNN Province dated 17/8/2007 3.000 16 32 Nguyen LienViet Commercial Cong Tru, Vi Joint Stock Bank – 91/GP-NHNN 33 Thanh Town, Lienviet Post Bank dated 28/3/2008 Hau Giang (LPB) Province 6.460 31 123/GP-NHNN dated 05/5/2008 5.550 13 0022/NHGP dated 12/9/1992 2037/QĐNHNN dated 16/9/2008 3.750 17 328/GP-NHNN 3.000 09 31 Petrolimex Group Commercial Joint Stock Bank (PG Bank) FPT Tower, Duy Tan, 34 Dich Vong Ward, Cau Giay, Hanoi 248 Tran Mekong Hung Dao, Development Joint Long Xuyen 35 Stock commercial Town, An Bank Giang (MDB) Province 36 Bao Viet Joint Stock 08 Ly Thai Tien Phong Commercial Joint Stock Bank (TPB) [xiv] commercial Bank (Bao Viet Bank) To, Hoan dated Kiem, Hanoi 11/12/2008 02 Ngo Vietnam Public Bank 279/GP-NHNN 37 Quyen, Hoan (PVcomBank) dated 16/9/2013 Kiem, Hanoi [xv] 9.000 30 B Statistics relating to unfair competition during 2006-2012 Table 1: Statistics of unfair competition cases during 2006-2012 (Source: Annual Report of VCA in 2012) Table 2: Statistics of unfair competition cases’ fines and fees during 20062012 (Source: Annual Report of VCA in 2012) Figure 1: Statistics of unfair competition cases’ fines and fees during 20062012 (Source: Annual Report of VCA in 2012) [xvi] C Statistics relating to the matter of human resources’ quality in Vietnam Table 3: Occupational structure of the labour force in Vietnam during 20012011 (Source: Ministry of Labour, Invalids and Social Affairs, Survey on labour and employment, 2001, 2005, 2006; General Statistics Office, Report on survey on labour and employment, 2010 and 2011) Unit: percentage of total labour force Figure 2: Structure of human capital in Vietnam (Source: OECD, performing the statistic provided by General Statistics Office (2008, 2009, 2010, 2011); Ministry of Labour, Invalids and Social Affairs (2006, 2007)) Notes:  “Official trained workers” refers to those who receive training at one of the official training institutions [xvii]  “Unskilled labourers” refer to workers who have been trained neither at any official training institution nor at work  “Trained at work only” refers to group of labour who have not been trained at any official training institution but trained at work by their employer  “Untrained labourers” refers to both “unskilled labourers” and “trained at works only” Figure 3: Banking sector headcount (Source: KPMG, Vietnam Banking Survey 2013) [xviii] D Statistics presenting JSCBs’ current status in comparison with other types of credit institutions Figure 4: Share of credit to the economy by group of credit institutions and total credit to GDP in Vietnam (Source: OECD, calculation on the statistics provided by the SBV) Unit: Percentage Notes:  “JV and FFCB” refer to joint-venture and fully foreign-owned commercial banks  “MC/GDP” refers to mobilized capital over GDP  Total credit/GDP and MC/GDP are referred to right axis [xix] Table 4: Key indicators of selected Vietnam JSCBs (Source: Standard and Poors) Figure 5: Asset composition of Vietnam's commercial banks in December 32st, 2012 (Source: KPMG, Vietnam Banking Survey 2013) [xx] Figure 6: Net interest margin in commercial banks between 2011 and 2012 (Source: KPMG, Vietnam Banking Survey 2013) Figure 7: The non-performance loan rates in each commercial bank (Source: KPMG, Vietnam Banking Survey 2013) [xxi] D Demonstration of financial contagion applicable to respective interbank linkages (Source: Franklin Allen & Douglas Gale (2000), "Financial Contagion”, Journal of Political Economy, University of Chicago Press, Volume 108, Number 01, pp 1-33) Notes: Allen and Gale (2000) examine contagion in the context of a banking system that has regional banks connected by interbank deposits Liquidity shocks in one region can spread to other regions through this network of deposits The extent of contagion depends on the structure of interbank connections A “complete” market structure is one where each bank has a symmetric link with each of the other banks An “incomplete” market structure is one where each bank has a link only to those banks in adjacent regions Another factor is the “connectedness” of the economy, which refers to the extent to which regions or segments of the economy are joined Allen and Gale also demonstrate that:  In a complete market, the effect of a shock is spread among all other banks, lowering the cost of the shock to any one region Although contagion can occur, it is less likely than under an incomplete market Furthermore, as the number of banks (regions) increases, the impact on any one bank decreases, reducing the potential for contagion  In an incomplete market, the impact of the shock is borne by few banks As a result, there is a higher likelihood that the banks will not be able to absorb the shock, and so the shock will continue to spread Incomplete market structures are more susceptible to contagion As the number of banks (regions) increases, the [xxii] effect is opposite to that under complete markets As the shock spreads to adjacent regions, the spill-over effects increase, making it easier for the contagion to gain momentum and continue spreading  The combination of an incomplete and highly connected market structure poses the highest possibility for contagion (Analysis from Carol Ann Northcott (2004), Competition in Banking: A review of the Literature, Bank of Canada Working Paper 2004-24, p.15) [xxiii]