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Size, growth and bank dynamics

Author

Listed:
  • Enrique Benito

    (Banco de España)

Abstract

This paper investigates the size distribution of the whole population of Spanish commercial, savings and cooperative banks from a dynamic perspective over the 1970 2006 period. To investigate the evolution of the size distribution, we determine whether the data satisfies the Law of Proportionate Effect (LPE) using panel unit root tests. We find that the size-growth relationship is not stable over time but changes depending on the competitive environment of banks (liberalization, deregulation and integration). When Spanish banking was highly regulated, we find that smaller banks grew faster than their larger counterparts. In recent years, however, we find that larger banks grow at the same rate or faster than smaller banks, a result that lends towards LPE acceptance. Thus, our study corroborates the conditioned nature of the size-growth relationship and the size distribution of banks, as emphasized by recent studies for the US banking system. Results imply that the size distribution of Spanish banks will become more skewed in next years, and concentration will tend to increase.

Suggested Citation

  • Enrique Benito, 2008. "Size, growth and bank dynamics," Working Papers 0801, Banco de España.
  • Handle: RePEc:bde:wpaper:0801
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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/08/Fic/dt0801e.pdf
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    Cited by:

    1. Dmitry I. Malakhov & Nikolay P. Pilnik & Igor G. Pospelov, 2015. "Stability of Distribution of Relative Sizes of Banks as an Argument for the Use of the Representative Agent Concept," HSE Working papers WP BRP 116/EC/2015, National Research University Higher School of Economics.
    2. Montagna, Mattia & Lux, Thomas, 2014. "Contagion risk in the interbank market: A probabilistic approach to cope with incomplete structural information," Kiel Working Papers 1937, Kiel Institute for the World Economy (IfW Kiel).
    3. Mattia Montagna & Thomas Lux, 2017. "Contagion risk in the interbank market: a probabilistic approach to cope with incomplete structural information," Quantitative Finance, Taylor & Francis Journals, vol. 17(1), pages 101-120, January.
    4. Jacky Mallett, 2015. "Threadneedle: An Experimental Tool for the Simulation and Analysis of Fractional Reserve Banking Systems," Papers 1502.06163, arXiv.org.
    5. Montagna, Mattia & Lux, Thomas, 2013. "Hubs and resilience: Towards more realistic models of the interbank markets," Kiel Working Papers 1826, Kiel Institute for the World Economy (IfW Kiel).
    6. Choudhry Tanveer Shehzad & Jakob de Haan & Bert Scholtens & Jakob de Haan, 2009. "Growth and Earnings Persistence in Banking Firms: A Dynamic Panel Investigation," CESifo Working Paper Series 2772, CESifo.
    7. Kontsevoy, Denis, 2013. "Empirical analysis of Russian commercial banks growth dynamics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 29(1), pages 67-81.
    8. Kaldasch, Joachim, 2014. "Evolutionary model of the bank size distribution," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-16.
    9. Montagna, Mattia & Lux, Thomas, 2014. "Contagion Risk in the Interbank Market: A Probabilistic Approach to Cope with Incomplete Structural Information," FinMaP-Working Papers 8, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    10. Xu Tian, 2022. "Uncertainty and the Shadow Banking Crisis: Estimates from a Dynamic Model," Management Science, INFORMS, vol. 68(2), pages 1469-1496, February.
    11. Manuel Illueca & Lars Norden & Gregory F. Udell, 2009. "Liberalization, Corporate Governance, and Savings Banks," Mo.Fi.R. Working Papers 17, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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    More about this item

    Keywords

    Size distribution; Law of proportionate effect; Panel unit root tests;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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