Bank Concentration and Retail Interest Rates

By Sandrine Corvoisier, Reint Gropp. Social Science Research Network, 2002

447 citations recorded by the source corpus.

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

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/d01289f4fee2141fa94c9d06b56ee6c439a0e2db

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Citations in the corpus

Ultimate ownership and bank competition (2016, unknown): “(2004); Cetorelli (2004); Cetorelli and Strahan (2006); Kerr and Nanda (2009); Canales and Nanda (2012); Chatterji and Seamans (2012); Love and Pería (2014), (2) Hannan and Berger (1991); Neumark and Sharpe (1992); Drechsler et al. (2014); Scharfstein and Sunderam (2014), (3) Allen et al.”
Credit and Banking in a DSGE Model of the Euro Area (2010, background): “For example, Corvoisier and Gropp (2002), analyzing ten European countries between 1991 and 1999, compute an average spread with the money market rate, for both deposit and loan rates, of 2.4 per cent; Claeys and Vander Vennet (2008) calculate an average loan-deposit rate margin for 18 Western…”
Market Power in European Banking Sectors (2005, unknown): “Indeed, the recent studies by De Bandt and Davis (2000) and Corvoisier and Gropp (2002) show that in the principal European countries and in some banking products there existed situations of monopolistic competition in the 1990s, and the monopoly situation was even accepted in banks that acted in sm”
The cost of market power in banking: Social welfare loss vs. cost inefficiency (2007, background): “As in Corvoisier and Gropp (2002) and Fernández de Guevara et al. (2005), this result shows the importance of distinguishing the effect of concentration by type of product, as done in this paper.”
Does Market Size Structure Affect Competition? The Case of Small Business Lending (2007, unknown): “Studies generally found that banks in more concentrated markets charge higher rates on small business loans (e.g., Hannan 1991, Berger and Hannan 1997, Corvoisier and Gropp 2002).”
Do Banks Benefit from Internationalization? Revisiting the Market Power-Risk Nexus (2013, unknown): “Previous l terature has used a bank’s z-score, nonperforming loans, or the volatility of bank-level variables such as reserves, profits, or nonperforming loans (Beck 2008, Behr et al. 2007, Corvoisier and Gropp 2002, De Guevara and Maudos 2007b).”
Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies (2013, unknown): “The insignificant relationship found in this paper may, in part, be explained in Corvoisier and Gropp (2002) that higher”
Impact of bank competition on the interest rate pass-through in the euro area (2013, unknown): “…(2004) show that an increase in banks’ market power (i.e. a reduction in competitive pressure) results in higher net interest margins.5 In addition, Corvoisier and Gropp (2002) explain the difference between bank retail interest rates and money market rates by bank’s product-specific…”
Cross-Country Comparisons of Competition and Pricing Power in (2006, background): “Molyneux, Lloyd-Williams, and Thornton (1994), Bikker and Groenveld (2000), De Bandt and Davis (2000), Weill (2003), Boutillier, Gaudin, and Grandperrin (2004), and Koutsomanoli-Fillipaki and Staikouras (2004) all find that monopolistic competition is prevalent across various European countries.”