Bank mergers and diversification: implications for competition policy
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." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.
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Bibliographic InfoPaper provided by Department of Economics, City University London in its series Working Papers with number 06/11.
Date of creation: 2006
Date of revision:
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Other versions of this item:
- 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.
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