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How Banking competition Changed over Time

  • Jacob Bikker
  • Laura Spierdijk

This paper is the first detailed and world-wide investigation of the developments in banking competition during the past fifteen years. Using the Panzar-Rosse approach, we establish significant changes over time in the competitiveness of the banking industry. The changes in competition over time are small on average, but substantial for several countries and regions. Various Western economies faced a significant decline in banking competition during recent years. In particular, the competitive climate in the euro area was subject to a major break around 2001 - 2002, initiating a period of less competition. Also for the United States and Japan we establish a break during this period. The part of Eastern Europe that now belongs to the European Union experienced a significant but modest decrease in competition during the past ten years. Furthermore, the banking industry in emerging markets became more competitive during the last decade. We attribute the predominantly downward trend in competition to increased bank size and the shift from traditional intermediation to off-balance sheet activities.

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File URL: http://www.dnb.nl/binaries/Working%20Paper%20167-2008_tcm46-170649.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 167.

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Date of creation: Feb 2008
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Handle: RePEc:dnb:dnbwpp:167
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  1. Michiel van Leuvensteijn & Jacob Bikker & Adrian van Rixtel & Christoffer Kok S�rensen, 2011. "A new approach to measuring competition in the loan markets of the euro area," Applied Economics, Taylor & Francis Journals, vol. 43(23), pages 3155-3167.
  2. Jacob A. Bikker & Laura Spierdijk & Paul Finnie, 2006. "The Impact of Bank Size on Market Power," DNB Working Papers 120, Netherlands Central Bank, Research Department.
  3. Jacob Bikker & Laura Spierdijk & Paul Finnie, 2006. "Misspecifiation of the Panzar-Rosse Model: Assessing Competition in the Banking Industry," DNB Working Papers 114, Netherlands Central Bank, Research Department.
  4. Francis X. Diebold & Celia Chen, 1993. "Testing structural stability with endogenous break point: a size comparison of analytic and bootstrap procedures," Working Papers 93-11, Federal Reserve Bank of Philadelphia.
  5. Angelini, Paolo & Cetorelli, Nicola, 2003. " The Effects of Regulatory Reform on Competition in the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 663-84, October.
  6. Jim Wong & Eric Wong & Tom Fong & Ka-fai Choi, 2006. "Competition in Hong Kong's Banking Sector: A Panzar-Rosse Assessment," Working Papers 0616, Hong Kong Monetary Authority.
  7. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
  8. J.A. Bikker & Laura Spierdijk & P. Finnie, 2007. "The impact of market structure, contestability and institutional environment on banking competition," Working Papers 07-29, Utrecht School of Economics.
  9. Baltagi, Badi H., 1981. "Simultaneous equations with error components," Journal of Econometrics, Elsevier, vol. 17(2), pages 189-200, November.
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