Abstract

This study aims to examine the nature of banking market power in Iraq and assess its impact on financial stability using the CAMEL model indicators. A sample of 15 Iraqi banks, representing the national banking system, was selected for the period 2010–2020. Data were obtained from the annual Financial Stability Reports issued by the Central Bank of Iraq to calculate the Herfindahl–Hirschman Index (HHI) as a measure of market power, alongside the CAMEL model indicators for banking stability: capital adequacy, asset quality, management quality, profitability, and liquidity. To test the research hypotheses, a simple regression model was applied to the annual aggregated data of the sample banks. The results indicate that the Iraqi banking market exhibits a high level of concentration and, consequently, substantial market power, which exerts a direct influence on financial stability in line with the stability–competition theory. Therefore, preserving the current market structure is likely to strengthen financial stability; however, it is equally important to sustain competitive dynamics to prevent the emergence of an oligopolistic market structure.