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The Impact of Competition on Bank Orientation and Specialization

  • Degryse, Hans
  • Ongena, Steven

How do banks react to increased competition? Recent banking theory offers conflicting predictions about the impact of competition on bank orientation - i.e., the choice of relationship based versus transactional banking - and bank industry specialization. We empirically investigate the impact of interbank competition on bank branch orientation and specialization. We employ a unique dataset containing detailed information on bank-firm relationships and industry classification. We find that bank branches facing stiff local competition engage considerably more in relationship-based lending and specialize somewhat less in a particular industry. Our results illustrate that competition and relationships are not necessarily inimical.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4543.

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Date of creation: Aug 2004
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Handle: RePEc:cpr:ceprdp:4543
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