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Bank Mergers and Diversification: Implications for Competition Policy

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  • Albert Banal‐Estañol
  • Marco Ottaviani

Abstract

This paper analyses competition and mergers among risk averse banks. We show that the correlation between the shocks to the demand for loans and the shocks to the supply of deposits induces a strategic interdependence between the two sides of the market. We characterise the role of diversification as a motive for bank mergers and analyse the consequences of mergers on loan and deposit rates. When the value of diversification is sufficiently strong, bank mergers generate an increase in the welfare of borrowers and depositors. If depositors have more correlated shocks than borrowers, bank mergers are relatively worse for depositors than for borrowers.

Suggested Citation

  • Albert Banal‐Estañol & Marco Ottaviani, 2007. "Bank Mergers and Diversification: Implications for Competition Policy," European Financial Management, European Financial Management Association, vol. 13(3), pages 578-590, June.
    • Handle: RePEc:bla:eufman:v:13:y:2007:i:3:p:578-590
    DOI: 10.1111/j.1468-036X.2007.00372.x
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    Cited by:

    1. Chiaramonte, Laura & Dreassi, Alberto & Piserà, Stefano & Khan, Ashraf, 2023. "Mergers and acquisitions in the financial industry: A bibliometric review and future research directions," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Guglielmo Maria Caporale & Carlos Pestana Barros, 2013. "Banking Consolidation in Nigeria, 2000-2010," NCID Working Papers 07/2013, Navarra Center for International Development, University of Navarra.
    3. Sinha, Pankaj & Gupta, Sushant, 2011. "Mergers and Acquisitions: A pre-post analysis for the Indian financial services sector," MPRA Paper 31253, University Library of Munich, Germany.
    4. Ullah, Nazim & Mat Nor, Fauzias & Abu Seman, Junaidah & Ainna Binti Ramli, Nur & FADLY, AHMED, 2023. "Mergers and Acquisitions in Islamic Banking Sector: An Empirical Analysis on Size Effect, Market Structure, and Operational," MPRA Paper 118681, University Library of Munich, Germany.
    5. Carlos Barros & Guglielmo Caporale, 2012. "Banking Consolidation in Nigeria," CEsA Working Papers 99, CEsA - Centre for African and Development Studies.
    6. Ullah, Nazim & Uddin, Akther, 2018. "Will financial distress lead to banks Merger and Acquisition in Bangladesh?," MPRA Paper 108576, University Library of Munich, Germany, revised 01 Jan 2018.
    7. Elena Beccalli & Ludovico Rossi, 2020. "Economies or diseconomies of scope in the EU banking industry?," European Financial Management, European Financial Management Association, vol. 26(5), pages 1261-1293, November.

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