Journal of Money Credit and Banking

Journal of Money, Credit, and Banking
Volume 36, Number 3, Part 2, June 2004
Special Issue: Bank Concentration and Competition: An Evolution in the Making
A Conference Sponsored by the Federal Reserve Bank of Cleveland
May 21-23, 2003
Special Issue Editor: Joseph G. Haubrich

CONTENTS

Articles

    Berger, Allen N.
    Demirgüç-Kunt, Asli, 1961-
    Levine, Ross.
    Haubrich, Joseph Gerard, 1958-
  • Bank Concentration and Competition: An Evolution in the Making
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    Subject Headings:
    • Bank mergers.
    • Competition.
    Abstract:
      The consolidation of banks around the world in recent years is intensifying public policy debates on the influences of concentration and competition on the performance of banks. In light of these developments, this paper first reviews the existing literature on the impact of bank concentration and competition. Second, the paper summarizes the main findings of the papers in this special issue of the JMCB within the context of this active literature. Finally, the paper suggests some directions for future research.
    Keywords:
      financial institutions, banks, concentration, competition, market structure, regulation
    Allen, Franklin, 1956-
    Gale, Douglas.
  • Competition and Financial Stability
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    Subject Headings:
    • Competition -- Mathematical models.
    • Equilibrium (Economics) -- Mathematical models.
    • Banks and banking -- Mathematical models.
    Abstract:
      Competition policy in the banking sector is complicated by the necessity of maintaining financial stability. Greater competition may be good for (static) efficiency, but bad for financial stability. From the point of view of welfare economics, the relevant question is: what are the efficient levels of competition and financial stability? We use a variety of models to address this question and find that different models provide different answers. The relationship between competition and stability is complex: sometimes competition increases stability. In addition, in a second-best world, concentration may be socially preferable to perfect competition and perfect stability may be socially undesirable.
    Keywords:
      crises, banking concentration, dynamic, spatial, and Schumpeterian competition
    Kahn, Charles M.
  • Comment on "Competition and Financial Stability"
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    Subject Headings:
    • Allen, Franklin, 1956- Competition and financial stability.
    • Gale, Douglas.
    • Competition.
    • Equilibrium (Economics)
    • Banks and banking.
    Keywords:
      financial contagion, banking regulation
    Boyd, John H.
    De Nicoló, Gianni.
    Smith, Bruce D., d. 2002.
  • Crises in Competitive versus Monopolistic Banking Systems
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    Subject Headings:
    • Bank failures -- Mathematical models.
    Abstract:
      We study a monetary, general equilibrium economy in which banks exist because they provide inter-temporal insurance to risk-averse depositors. A "banking crisis" is defined as a case in which banks exhaust their reserve assets. This may (but need not) be associated with liquidation of a storage asset. When such liquidation does occur, the result is a real resource loss to the economy and we label this a "costly banking crisis." There is a monetary authority whose only policy choice is the long-run, constant rate of growth of the money supply, and thus the rate of inflation. Under different model specifications, the banking industry is either a monopoly bank or a competitive banking industry. It is shown that the probability of a banking crisis may be higher either under competition or under monopoly. This is shown to depend on the rate of inflation. In particular, if the nominal rate of interest (rate of inflation) is below (above) some threshold, a monopolistic banking system will always result in a higher (lower) crisis probability. Thus, the relative crisis probabilities under the two banking systems cannot be determined independently of the conduct of monetary policy. We further show that the probability of a costly banking crisis is always higher under competition than under monopoly. However, this apparent advantage of the monopoly banking is strictly due to the fact that it provides relatively less valuable inter-temporal insurance.
    Keywords:
      banking crisis (panic), monetary general equilibrium
    Thakor, Anjan V.
  • Comment on "Crises in Competitive versus Monopolistic Banking Systems"
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    Subject Headings:
    • Boyd, John H. Crises in competitive versus monopolistic banking systems.
    • De Nicoló, Gianni.
    • Smith, Bruce D., d. 2002.
    • Bank failures -- Mathematical models.
    Keywords:
      banking crisis (panic), monetary equilibrium
    Martinez Peria, Maria Soledad.
    Mody, Ashoka.
  • How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America
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    Subject Headings:
    • Banks and banking, Foreign -- Latin America -- Econometric models.
    • Interest rates -- Latin America -- Econometric models.
    Abstract:
      Increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors' market structures in developing countries. We analyze the impact of these factors on Latin American bank spreads during the late 1990s. Our results suggest that foreign banks were able to charge lower spreads relative to domestic banks. This was more so for de novo foreign banks than for those that entered through acquisitions.The overall level of foreign bank participation seemed to influence spreads indirectly, primarily through its effect on administrative costs. Bank concentration was positively and directly related to both higher spreads and costs.
    Keywords:
      market structure, concentration, foreign bank participation, bank spreads
    Haber, Stephen H., 1957-
  • Comment on "How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America"
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    Subject Headings:
    • Martinez Peria, Maria Soledad. How foreign participation and market concentration impact bank spreads: evidence from Latin America.
    • Mody, Ashoka.
    • Banks and banking, Foreign -- Latin America -- Econometric models.
    Keywords:
      Latin America, banks, mergers and acquisitions
    Cetorelli, Nicola.
  • Real Effects of Bank Competition
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    Subject Headings:
    • Banks and banking, European -- Mathematical models.
    • Competition -- Mathematical models.
    • Manufacturing industries -- OECD countries -- Mathematical models.
    Abstract:
      Does banking market power contribute to the formation of nonfinancial industries populated by few, large firms, or does it instead enhance industry entry? Theoretical arguments could be made to support either side. The banking industry of European Union (EU) countries has been significantly deregulated in the early 1990s. Under the old regime, cross-border expansions were heavily constrained, while after deregulation, banks from EU countries have instead been allowed to branch freely into other EU countries. Concurrently to the process of deregulation, European banking industries have also experienced a significant process of consolidation. Exploiting such significant innovations affecting the banking industries of EU countries, this paper explores whether changes in bank competition have in fact played a role on the market structure of nonfinancial industries. Empirical evidence is derived from a panel of manufacturing industries in 29 OECD countries, both EU and non-EU members, adopting a methodology that allows controlling for other determinants of industry market structure common across industries, across countries or related to time passing. The evidence suggests that the overall process of enhanced competition in EU banking markets has led to markets in nonfinancial sectors characterized by lower average firm size.
    Keywords:
      bank competition, market structure, firmsize, firmsize distribution
    Rosen, Richard Joseph.
  • Comment on "Real Effects of Bank Competition"
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    Subject Headings:
    • Cetorelli, Nicola. Real effects of bank competition.
    • Banks and banking, European -- Mathematical models.
    • Competition -- Mathematical models.
    Keywords:
      banking, industry structure
    Claessens, Stijn.
    Laeven, Luc.
  • What Drives Bank Competition? Some International Evidence
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    Subject Headings:
    • Banks and banking -- Mathematical models.
    • Competition -- Mathematical models.
    Abstract:
      Using bank-level data, we apply the Panzar and Rosse (1987) methodology to estimate the extent to which changes in input prices are reflected in revenues earned by specific banks in 50 countries' banking systems. We then relate this competitiveness measure to indicators of countries' banking system structures and regulatory regimes. We find systems with greater foreign bank entry and fewer entry and activity restrictions to be more competitive. We find no evidence that our competitiveness measure negatively relates to banking system concentration. Our findings confirm that contestability determines effective competition especially by allowing (foreign) bank entry and reducing activity restrictions on banks.
    Keywords:
      banking, competition, contestability, Panzar and Rosse
    Shaffer, Sherrill L. (Sherrill Lynn)
  • Comment on "What Drives Bank Competition? Some International Evidence"
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    Subject Headings:
    • Claessens, Stijn. What drives bank competition? some international evidence.
    • Laeven, Luc.
    • Banks and banking -- Mathematical models.
    • Competition -- Mathematical models.
    Keywords:
      banking, competition, Rosse-Panzar
    Demirgüç-Kunt, Asli, 1961-
    Laeven, Luc.
    Levine, Ross.
  • Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation
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    Subject Headings:
    • Banking law -- Mathematical models.
    • Interest rates -- Mathematical models.
    • Banks and banking -- Costs -- Mathematical models.
    • Intermediation (Finance) -- Mathematical models.
    Abstract:
      This paper examines the impact of bank regulations, market structure, and national institutions on bank net interest margins and overhead costs using data on over 1400 banks across 72 countries while controlling for bankspecific characteristics. The data indicate that tighter regulations on bank entry and bank activities boost the cost of financial intermediation. Inflation also exerts a robust, positive impact on bank margins and overhead costs. While concentration is positively associated with net interest margins, this relationship breaksdownwhencontrolling for regulatory impediments to competition and inflation. Furthermore, bank regulations become insignificant when controlling for national indicators of economic freedom or property rights protection, while these institutional indicators robustly explain cross-bank net interest margins and overhead expenditures. Thus, bank regulations cannot be viewed in isolation; they reflect broad, national approaches to private property and competition.
    Keywords:
      bank concentration, interest margins, overhead costs, bank policies, regulation
    Strahan, Philip E. (Philip Elliot), 1963-
  • Comment on "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation"
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    Subject Headings:
    • Demirgüç-Kunt, Asli, 1961- Regulations, market structure, institutions, and the cost of financial intermediation.
    • Laeven, Luc.
    • Levine, Ross.
    • Banking law.
    • Intermediation (Finance) -- Mathematical models.
    • Banks and banking -- Costs -- Mathematical models.
    Keywords:
      law and finance, financial intermediation
    Beck, Thorsten.
    Demirgüç-Kunt, Asli, 1961-
    Maksimovic, Vojislav, 1955-
  • Bank Competition and Access to Finance: International Evidence
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    Subject Headings:
    • Banks and banking -- Mathematical models.
    • Competition -- Mathematical models.
    • Credit -- Mathematical models.
    Abstract:
      Using a unique database for 74 countries and for firms of small, medium, and large size we assess the effect of banking market structure on the access of firms to bank finance. We find that bank concentration increases obstacles to obtaining finance, but only in countries with low levels of economic and institutional development. Alarger share of foreign-owned banks and an efficient credit registry dampen the effect of concentration on financing obstacles, while the effect is exacerbated by more restrictions on banks' activities, more government interference in the banking sector, and a larger share of government-owned banks.
    Keywords:
      financial development, financing obstacles, small and medium enterprises, bank concentration, bank competition
    Ergungor, O. Emre.
  • Comment on "Bank Competition and Access to Finance: International Evidence"
    [Access article in PDF]
    Subject Headings:
    • Beck, Thorsten. Bank competition and access to finance: international evidence.
    • Demirgüç-Kunt, Asli, 1961-
    • Maksimovic, Vojislav, 1955-
    • Banks and banking -- Mathematical models.
    • Credit -- Mathematical models.
    • Competition -- Mathematical models.
    Keywords:
      bank competition, bank concentration, financing obstacles



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