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Bank competition and regulatory reform: the case of the Italian banking industry

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  • Nicola Cetorelli
  • Paolo Angelini

Abstract

This study analyzes the evolution of competitive conditions in the Italian banking industry using firm-level balance sheet data for the period 1983-1997. Regulatory reform, large-scale consolidation, and competitive pressure from other European countries have changed substantially the banking environment, with potentially offsetting effects on the overall degree of competition of the banking market. We find that competitive conditions, relatively unchanged until 1992, have improved substantially thereafter, with estimated mark-ups decreasing over the last five years of the sample period. Also, there is no evidence that banks involved in mergers and acquisitions gained market power; at the same time, however, they exhibit lower than average marginal costs. Finally, after controlling for various factors that may have determined the time pattern of banks’ estimated mark-ups, we still detect a significant unexplained drop in our competitive conditions indicators after 1992. This is consistent with the hypothesis that the introduction of the Single Banking License in 1993 contributed to improve bank competition.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-99-32.

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Date of creation: 1999
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Handle: RePEc:fip:fedhwp:wp-99-32

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Keywords: Bank supervision ; Banks and banking - Italy;

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