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State Aid and Competition in the European Banking Markets

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  • Laser, Falk Hendrik

Abstract

I investigate whether bank bailouts since the outbreak of the financial crisis affected competition in the European banking markets. Using a unique dataset on large bank rescues I compare the development of market power of rescued and non-rescued banks between 2000 and 2018. I find that bank bailout coincides with a substantial drop of six percentage points in the Lerner index. Effects are heterogeneous and driven by bank rescues directly after the outbreak of the financial crisis in 2008 and not by bank rescues triggered during the European sovereign debt crisis starting in 2010. My findings cast positive light on European competition policy as banks do not appear to have capitalized on rescue money in terms of market power. Protecting competition in European banking markets remains a topical policy issue in light of rising levels of market power and potential public interventions in the course of the ongoing COVID-19 pandemic.

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  • Laser, Falk Hendrik, 2021. "State Aid and Competition in the European Banking Markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 126873, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:126873
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/126873/
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    Cited by:

    1. Altunbas, Yener & Avignone, Giuseppe & Kok, Christoffer & Pancaro, Cosimo, 2023. "Euro area banks’ market power, lending channel and stability: the effects of negative policy rates," Working Paper Series 2790, European Central Bank.

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