Competition Policy in Banking in the European Union

In this doctoral thesis, I am assessing competition trends in the banking sector in the European Union. In recent years, market power and market concentration have increased in the European banking markets. I argue that competition policy needs to play a strong role to protect economic prosperity in the European Union. The doctoral thesis contains three chapters covering the main instruments of European competition policy: antitrust, merger control and state aid control. In the first chapter, I analyze the effects on retail interest rates of the merger between ABN AMRO and Fortis Bank NL in the Dutch banking market. Using a structural model, I simulate decreases in interest rates of up to 30 basis points for the merging banks. Depending on the measure for the change in consumer welfare, the model suggests that the merger caused annual losses of up to 50 euros for customers of the merging banks and between two and seven euros for the average consumer. Accounting for efficiency gains partially offsets the anti-competitive effects for consumers. In the second chapter, I quantify the potential effects of common ownership on retail interest rates in the Dutch banking market. Using a structural model combining ownership data and survey data on consumers' choice of savings accounts, I simulate interest rates under different assumptions on common ownership. Conditional on a common ownership mechanism, I simulate substantial decreases in interest rates of up to 50 basis points. These results suggest that antitrust authorities should cautiously observe trends in common ownership and assess its potential anti-competitive effects on consumers. In the third chapter, I investigate the impact of bank bailout during the financial crisis on competition in the European Union. Combining information on individual bank rescues with bank-level measures of market power, I find a substantial decrease of six percentage points in the Lerner index for rescued banks. The estimated effects are heterogeneous and only driven by banks rescued in the first two years of the financial crisis before the European sovereign debt crisis started in 2010. This finding casts a positive light on state aid control in the European Union as beneficiaries of state aid did not abuse public funds to distort competition in their favor. Protecting competition in banking remains a pertinent task in light of possible further public interventions triggered by the ongoing COVID-19 pandemic.