Bank Competition

Using a measure of competition based on the Panzar-Rosse model, this paper explains bank competition across 76 countries on the basis of various determinants. Studies explaining banking competition are rare and typically insuffciently robust as they are based on a limited number of countries only. Traditionally, market structure indicators, such as the number of banks and banking concentration, have been

This article offers an explanation for the substantial variation of credit standards and price competition among banks over the business cycle. As the economic outlook improves, the average default probabilities of borrowers decline. This affects the profitability of screening and causes ...

In this paper we empirically study bank-client relationships using a sample of manufacturing Chilean firms. We examine whether concentration and the duration of bank-firm relationships affect the terms of bank financing, evaluating both the volume of bank lending and bank loan costs. Our results indicate that lower concentration, measured by the number of banks a firm borrows from, is associated

In this paper, we analyze the risk-taking behavior of banks in emerging economies in a context of international capital mobility. Our paper highlights a new channel through which depositors can exercise pressure to control risk taking. Depositors can reallocate their savings away from their home country to the more protective system of a developed economy. We recover a classical result

In this paper we construct a theoretical model of spatial banking competition that
considers the differential information among banks and potential borrowers in
order to investigate how market structure affects the lending behavior of banks and
their incentives to invest in screening technology. Consistent with the prevailing
view in the relevant literature, our results reveal that competition reduces lending
cost, which, in turn, encourages the entry of new customers in the loan market.
Also, that the transportation cost that potential borrowers have to pay in order to
reach the bank of their interest is decreased with the degree of competitiveness.
Importantly, we demonstrate that market structure exerts a considerable positive
effect on banks’ incentives to screen their loan applicants since banks are found to
invest more in screening as competition in the market becomes higher. This is to
say, banks resort to screening that serves as a buffer mechanism against bad credit
which entails higher risk and which is more likely under competitive conditions.
Overall, our findings provide support to a rather close link between the degree of
competition, bank lending activity, and the investment of banks in screening
technology.

Using a measure of competition based on the Panzar-Rosse model, this paper explains bank competition across 76 countries on the basis of various determinants. Studies explaining banking competition are rare and typically insuffciently robust as they are based on a limited number of countries only. Traditionally, market structure indicators, such as the number of banks and banking concentration, have been

We introduce a model analyzing how asymmetric information problems in a bank-loan market may evolve over the age of a borrowing firm. The model predicts a life-cycle pattern for banks’interest rate markup. Young firms pay a low or negative markup, thereafter the markup increases until it falls for old firms. Furthermore, the pattern of the life-cycle depends on the informational

Geographic dispersion of depositors, borrowers, and banks may prevent funding from flowing to areas of high loan demand, limiting credit access. We provide evidence of geographic imbalance of deposits and loans, and develop a methodology for investigating the contribution to this imbalance of (i) branch networks, (ii) market power, and (iii) scope economies, using US bank-county-year level data. Results are based on a novel measure of deposits and loans imbalance, and estimation of a structural model of bank competition that admits interconnections across locations and between deposit and loan markets, thereby permitting counterfactuals highlighting the role of the three factors.

We present new measures of market power for the banking industry in
Colombia and estimate their effect on the cost of credit for non-financial firms.Our results suggest that bank competition increased during the 2006-2008 period–even as concentration increased–but decreased thereafter. Using a unique combination of loan, firm and bank-level datasets we are also able to show that banks loosing overall market power –measured by the average price-cost margin– decrease interest rates to small firms, but increase rates to firms with which they have the oldest credit relationships. This suggests (i) the existence of market power that is specific to the bank-firm relationship (i.e., informational lock-in and hold-up problems due to switching costs), and (ii) that size
may be capturing other firm attributes such as observable risk, scale effects or implicit collateral.

This article examines the impact of stock market performance on the investment policy of pension funds. We find that stock market performance affect the asset allocation of Dutch pension funds in two ways. In the short term, outperformance of equities over bonds and other investment categories automatically results in a higher actual equity allocation (and vice versa), as pension funds do not continuously rebalance their investment portfolios. Each quarter, pension funds rebalance, on average, around 39 percent of excess equity returns, leaving 61 percent for free floating. In the medium term, outperformance of equities induces pension funds to increase their strategic equity allocation (and vice versa). These findings suggest that the investment policies of pension funds are partially driven by the cyclical performance of the stock market.We also find that rebalancing is much stronger after negative equity returns, indicating that pension funds respond asymmetrically to stock marke...