MARKET POWER IN EUROPEAN BANKING SECTORS (original) (raw)

Trends in competition and profitability in the banking industry: A basic framework

2004

This paper brings to the forefront the assumptions that we make when focussing on a particular type of explanation for bank profitability. We evaluate a broad field of research by introducing a general framework for a profit maximizing bank and demonstrate how different types of models can be fitted into this framework. Next, we present an overview of the current major trends in European banking and relate them to each model's assumptions, thereby shedding light on the relevance, timeliness and shelf life of the different models. This way, we arrive at a set of recommendations for a future research agenda. We advocate a more prominent role for output prices, and suggest a modification of the intermediation approach. We also suggest ways to more clearly distinguish between market power and efficiency, and explain why we need time-dependent models. Finally, we propose the application of existing models to different size classes and sub-markets. Throughout we emphasize the benefits from applying several, complementary models to overcome the identification problems that we observe in individual models.

Oligopoly and Conduct in Banking - An Empirical Analysis - ∗

2005

This paper analyzes competitive conduct in banking. Examination of the German case turns out to be particularly promising. Germany's so called three-pillar system, characterized by a unique group structure and significant state involvement, has been heavily attacked recently and is now under close scrutiny. We apply techniques from New Empirical Industrial Organization (NEIO) to an extensive micro data set covering almost all German banks for the time period from 1993 to 2001. Based on an empirical cost approach we estimate Lerner indices taking account of bank individual effects. From our analysis three main results emerge. Firstly, we find competitive pressures increased (market power declined) during our sample periodvery much in line with conventional wisdom. However, market power currently exercised by German banks is moderate but still significant. Secondly, banks' pricing policies are largely consistent with regional classifications based on our estimated Lerner indices, supporting the validity of our estimates of bank market power. Finally, we find cross regional differences in average Lerner indices to be attributable to a significant extent to regional structural and economic factors. Finally, we find cross regional differences in average Lerner indices to be attributable to a significant extent to local bank concentration, however, local demand side factors seem to be of even more economic significance.

Competition, growth and performance in the banking industry

Center for Financial Institutions …, 2000

This paper analyzes competition, growth, and performance in the banking industry. First, we analyze the relationship between market structure and the performance of the banking industry. Furthermore, we test hypotheses on whether size matters for individual banks' profit performance. As such, we use extreme bounds stability analysis and a stability analysis in line with Sala-i-Martin (1997) to test for the reliability of the regression outcomes. It turns out that bank profits are inversely related to the amount of bank assets and are positively associated with the amount of tier-one bank capital.

Competitive conditions in european banking

Journal of Banking & Finance, 1994

In this paper we utilise the Rosse-Panzar statistic to assess competitive conditions in major EC banking markets between 1986 and 1989. Although EC banking legislation has established relatively free access to member country banking systems in recent years, our results indicate no change in market conduct of banks between 1986 and 1989. The results suggest that banks in Germany, the United Kingdom, France and Spain earned revenues as if under conditions of monopolistic competition in the period. In the case of Italy, they are consistent with banks having earned revenues as if under monopoly or conjectural variations short-run oligopoly conditions. We interpret the results as indicative of a lack of integration in EC banking markets and they thus underline the importance of the Second Banking Directive, the associated supervisory arrangements, and the elimination of capital controls as to achieving full integration.

Measuring of Concentration and Competition: Serbian Banking Sector

Social Science Research Network, 2020

The author in this paper considers the question of the use of indices of concentration and competition in the banking market. As example he chose the Serbian banking sector during the second half of the 2010s. The analyses are based on the data of bank financial statements for relevant years, as well as the results of other researchers. Тhe traditional concentration indicators (CRn and HH indices) are used, as well as the Gini coefficients and Rosenbluth and Tideman-Hall index and coefficient of entropy. At the end author calculated Linda Indices, the rarely used indicators not only in Serbia, and new Svetunkov's approach and coefficients of the model based on Gauss exponential curve. The concentration degree in all cases is calculated based on five variables: total assets, deposits, capital, bank operating income and loans. Although these variables are highly correlated, the results show relatively important differences of its use. In the case of such variable as capital, the Linda indices suggested the existence of an oligopoly structure. In conclusion, it was demonstrated that in the case of the relatively large number of banks in Serbia, the existing concentration degree is generally moderately low, which provides suitable conditions for the development of healthy competition among them. At the end, there is necessary to emphasize different capability of information respective indicators and its different discriminative power. In future research this is fact that is it undoubtedly necessary particularly not to ignore.

Lerner Index-Indicator of Banks Market Power in Albania

2015

Competition in the banking sector has been and remains a considerable interesting issue, not only for the importance it has in the banking and financial system, but also in the whole economy. Recently, more attention is paid to the relation between competitiveness of banking system and banking system risk, the impact on financial stability and on the whole economy [Beck, (2008), Beck et al, (2012)]. The testing of these connections and the obtaining of stable results imposes a quite accurate measurement and assessment of competition. The aim of this paper is to measure competition of banks that conduct their activity in Albania, based on a non-structural approach. The obtained assessments show that in 2004-2014, the competition of banks in Albania stands between the complete competition and the monopolistic one.

EXPLANATORY FACTORS OF MARKET POWER IN THE BANKING SYSTEM

The Manchester School, 2007

The aim of the study is to analyze the explanatory factors of market power in the banking system. Using as laboratory the Spanish banking system in the period 1986-2002, results show an increase of market power from the mid-1990s. Of the set of variables that the model posits as explaining market power, those with greatest explanatory power are size, efficiency and specialization; concentration is not significant. This last result shows the limitations of the approaches, studies and decision-making rules of economic policy that uses market concentration as a proxy for the degree of competition.

Effects of market share on the bank’s profitability

2012

The relationship between market share and profitability is perhaps the most-studied single phenomenon in business policy. The purpose of this study is an attempt to explore the impact of various factors (such as market share, concentration ratio) on profitability measurements of banks in Bulgaria. The analysis is based on balanced panel data of 22 banks over the period 2006 to 2010. For the measurement of bank profitability using one of the most widely used indicators: return on equity (ROE)

Competition-Stability Relationship in the Banking Sector

2015

The goal of the current research is to study the competitionstability relationship in the Latvian banking sector. Research period covers seven years – from 2007 till 2013. The sample consists of 16 Latvian commercial banks. Financial data is extracted from BankScope database. The main method applied to achieve the established goal is a multiple regression analysis. Bank stability is used as a dependent variable and proxied by risk index. To measure the level of competition Lerner index and Boone indicator are calculated. Besides, the consistency between concentration and competition measures is tested applying a correlation analysis. Concentration in the banking sector is measured using Herfindahl-Hirschman Index (HHI) and concentration ratio CR5. Calculations are performed in SPSS environment. The research revealed no statistically significant relationship between the values of Lerner index and Boone indicator estimated for Latvian sample. The hypothesis about the consistency betwe...