The Economics of Regional Demarcation in Banking
The European Commission criticized cooperation among savings and cooperative banks for potentially anticompetitive effects. Using an industrial economics model of banks taking deposits and giving loans, we look at regional demarcation as one of such cooperative ractices. We study two adjacent markets comprising one savings or cooperative bank that focuses on one market and one private commercial bank serving both. We acknowledge that savings and cooperative banks have atypical objective functions. We find that abolishing regional demarcation does increase total loan volume. Due to their partially nonprofit objectives, savings or cooperative banks improve market performance, and they do better without the regional demarcation that shields the private commercial bank from aggressive competition.
Volume (Year): 63 (2011)
Issue (Month): 2 (April)
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