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Bank concentration and retail interest rates

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Listed author(s):
  • Corvoisier, Sandrine
  • Gropp, Reint

Abstract

The recent wave of mergers in the euro area raises the question, whether the increase in concentration has at least in part offset the increase in competition in European banking through deregulation. We test this question by estimating a simple Cournot model of bank pricing. We construct country and product specific measures of bank concentration and find that for loans and demand deposits, increasing concentration may have resulted in less competitive pricing by banks, whereas for savings and time deposits, the model is rejected, suggesting increases in contestability and/ or efficiency in these markets. These findings are robust across a wide variety of econometric specifications. Finally, the paper discusses some implications for tests of the effect of concentration on monetary policy transmission JEL Classification: L13, G21, B43

(This abstract was borrowed from another version of this item.)

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 26 (2002)
Issue (Month): 11 (November)
Pages: 2155-2189

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Handle: RePEc:eee:jbfina:v:26:y:2002:i:11:p:2155-2189
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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Find related papers by JEL classification:
  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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  1. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
  2. D'Auria, Claudio & Foglia, Antonella & Reedtz, Paolo Marullo, 1999. "Bank interest rates and credit relationships in Italy," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1067-1093, July.
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  6. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
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  9. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, July.
  10. Richard Startz, 1983. "Competition and Interest Rate Ceilings in Commercial Banking," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 255-265.
  11. Faini, Riccardo & Giannini, Curzio & Ingrosso, Fulvio, 1992. "Finance and Development: The Case of Southern Italy," CEPR Discussion Papers 674, C.E.P.R. Discussion Papers.
  12. Caminal, Ramon & Matutes, Carmen, 1997. "Can Competition in the Credit Market be Excessive?," CEPR Discussion Papers 1725, C.E.P.R. Discussion Papers.
  13. Harhoff, Dietmar & Korting, Timm, 1998. "Lending relationships in Germany - Empirical evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1317-1353, October.
  14. Amel, Dean F. & Hannan, Timothy H., 1999. "Establishing banking market definitions through estimation of residual deposit supply equations," Journal of Banking & Finance, Elsevier, vol. 23(11), pages 1667-1690, November.
  15. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November.
  16. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
  17. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-299, May.
  18. Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
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  20. Davis, E. Philip & De Bandt, Olivier, 1999. "A cross-country comparison of market structures in European banking," Working Paper Series 0007, European Central Bank.
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