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A new approach to measuring competition in the loan markets of the euro area

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  • Michiel van Leuvensteijn
  • Jacob Bikker
  • Adrian van Rixtel
  • Christoffer Kok-Sorensen

Abstract

This paper is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major EU countries as well as, for comparison, the UK, the US and Japan. Our findings indicate that over the period 1994-2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive. Turning to competition among specific types of banks, commercial banks tend to be more competitive, particularly in Germany and the US, than savings and cooperative banks.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 143.

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Date of creation: Aug 2007
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Handle: RePEc:dnb:dnbwpp:143

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Keywords: Banking industry; competition; loan markets; marginal costs; market shares.;

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References

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