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

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Author Info
Michiel van Leuvensteijn () (Netherlands Bureau for Economic Policy Analysis (CPB), P.O. Box 80510, 2508 GM, The Hague, The Netherlands.)
Jacob A. Bikker () (De Nederlandsche Bank (DNB), Supervisory Policy Division, Strategy Department, P.O. Box 98, NL-1000 AB Amsterdam, The Netherlands.)
Adrian A.R.J.M. van Rixtel () (International Economics and International Relations Department, Banco de España (BdE), Alcalá 48, 28014 Madrid, Spain.)
Christoffer Kok Sørensen () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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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. A caveat of the Boone-indicator may be that it assumes that banks generally pass on at least part of their efficiency gains to their clients. 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. Bearing the mentioned caveats in mind, 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. JEL Classification: D4, G21, L1.

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Paper provided by European Central Bank in its series Working Paper Series with number 768.

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Length: 35 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:ecb:ecbwps:20070768

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

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian van Rixtel, 2008. "Impact of bank competition on the interest rate pass-through in the euro area," Banco de España Working Papers 0828, Banco de España. [Downloadable!]
    Other versions:
  2. Luigi Landolfo, 2007. "Modeling the impact of external factors on the euro area’s HICP and real economy - a focus on pass-through and the trade balance," Working Paper Series 789, European Central Bank. [Downloadable!]
  3. Giuseppe Marotta, 2008. "Structural breaks in the lending interest rate pass-through and the euro," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08031, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi". [Downloadable!]
    Other versions:
  4. Nikolaus Siegfried & Emilia Simeonova & Cristina Vespro, 2007. "Choice of currency in bond issuance and the international role of currencies," Working Paper Series 814, European Central Bank. [Downloadable!]
  5. Jiri Podpiera, 2007. "Policy rate decisions and unbiased parameter estimation in typical monetary policy rules," Working Paper Series 771, European Central Bank. [Downloadable!]
  6. Jacob A. Bikker & Laura Spierdijk, 2009. "Measuring and explaining competition in the financial sector," Working Papers 09-01, Utrecht School of Economics. [Downloadable!]
  7. Gonzales-Martínez, Rolando, 2008. "Estructura de Mercado, Condiciones de Entrada y Número Óptimo de Bancos en el Sistema Bancario Boliviano: Una Aproximación de Indicadores de Concentración y Movilidad Intra-industrial
    [Market S    ," MPRA Paper 14012, University Library of Munich, Germany, revised Feb 2009. [Downloadable!]
  8. Giovanni Lombardo & David Vestin, 2007. "Welfare implications of Calvo vs. Rotemberg pricing assumptions," Working Paper Series 770, European Central Bank. [Downloadable!]
    Other versions:
  9. Antje Berndt & Iulian Obreja, 2007. "The pricing of risk in European credit and corporate bond markets," Working Paper Series 805, European Central Bank. [Downloadable!]
  10. Jacob Bikker & Laura Spierdijk, 2008. "How Banking competition Changed over Time," DNB Working Papers 167, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  11. Lieven Baert & Rudi Vander Vennet, 2008. "Bank Market Structure and Firm Capital Structure," Working Paper / FINESS 2.1, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  12. Juselius , Mikael & Kim, Moshe & Ringbom, Staffan, 2009. "Do markup dynamics reflect fundamentals or changes in conduct?," Research Discussion Papers 12/2009, Bank of Finland. [Downloadable!]
  13. Gennaioli, Nicola & Rossi, Stefano, 2008. "Judicial Discretion in Corporate Bankruptcy," CEI Working Paper Series 2008-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  14. Gennaioli, Nicola & Rossi, Stefano, 2008. "Optimal Resolutions of Financial Distress by Contract," CEI Working Paper Series 2008-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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