This paper examines the cross-country variation in the relationship between bank competition and stability, exploring market, regulatory, and institutional factors that explain this variation. It shows that increased competition has a larger impact on banks' risk-taking incentives in countries with stricter activity restrictions, more homogeneous bank revenue structures, more generous deposit insurance, and more effective credit information sharing systems. The effects are economically significant and have important implications for current regulatory reform debates. The paper combines two literatures and provides empirical evidence that the relationship between competition and stability varies across markets with different regulatory frameworks, market structures, and levels of institutional development. While an average positive relationship is found between banks' market power (measured by the Lerner index) and stability (measured by the Z-score), large cross-country variation exists. The paper also finds that regulatory frameworks play a critical role in explaining the variation in the relationship between competition and stability across countries and over time. It includes a simulation of a post-crisis scenario with more generous deposit insurance and stronger activity restrictions, showing a very negative impact of competition on stability in this scenario. The paper contributes to the academic debate on the effect of competition on bank stability and highlights the importance of cross-country heterogeneity in regulatory and policy considerations. It also shows that the relationship between market power and soundness is almost twice as large in the post-crisis scenario compared to the average country. The paper uses a variety of indicators to measure competition and stability, including the Lerner index and the Z-score, and explores the impact of regulatory and institutional factors on the competition-stability relationship. The results suggest that the relationship between competition and stability is not universally positive and is influenced by country-specific features such as information sharing, financial market development, regulatory frameworks, and herding behavior. The paper provides empirical evidence that the competition-stability relationship varies across countries and over time, and highlights the importance of considering these factors in regulatory reform discussions.This paper examines the cross-country variation in the relationship between bank competition and stability, exploring market, regulatory, and institutional factors that explain this variation. It shows that increased competition has a larger impact on banks' risk-taking incentives in countries with stricter activity restrictions, more homogeneous bank revenue structures, more generous deposit insurance, and more effective credit information sharing systems. The effects are economically significant and have important implications for current regulatory reform debates. The paper combines two literatures and provides empirical evidence that the relationship between competition and stability varies across markets with different regulatory frameworks, market structures, and levels of institutional development. While an average positive relationship is found between banks' market power (measured by the Lerner index) and stability (measured by the Z-score), large cross-country variation exists. The paper also finds that regulatory frameworks play a critical role in explaining the variation in the relationship between competition and stability across countries and over time. It includes a simulation of a post-crisis scenario with more generous deposit insurance and stronger activity restrictions, showing a very negative impact of competition on stability in this scenario. The paper contributes to the academic debate on the effect of competition on bank stability and highlights the importance of cross-country heterogeneity in regulatory and policy considerations. It also shows that the relationship between market power and soundness is almost twice as large in the post-crisis scenario compared to the average country. The paper uses a variety of indicators to measure competition and stability, including the Lerner index and the Z-score, and explores the impact of regulatory and institutional factors on the competition-stability relationship. The results suggest that the relationship between competition and stability is not universally positive and is influenced by country-specific features such as information sharing, financial market development, regulatory frameworks, and herding behavior. The paper provides empirical evidence that the competition-stability relationship varies across countries and over time, and highlights the importance of considering these factors in regulatory reform discussions.