Counterfactual analysis of bank mergers
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We introduce a counterfactual analysis of banks mergers, combining the pre-merger equilibrium setting with post-merger environmental characteristics, while accounting for endogenously propagated changes in market structure. Using this procedure we are able to estimate the effects on loan flows and interest rates that would have been observed if the pre-merger equilibrium was not altered. Results are obtained for firms, households, and banks inside and outside the merging circles separately. We find that mergers increased firms’ access to credit, but had an opposite effect on households and led to a widespread decrease in interest rates.
KeywordsBanks Mergers Counterfactual Competition
JEL ClassificationG21 G34 L10
We would like to thank the Editor Heather Anderson, two anonymous referees, Daniel Ackerberg, António Antunes, Vittoria Cerasi, Filipa Lima, David Martinez Miera, Hugo Reis, Nuno Ribeiro, Mark Roberts, João Santos, Giancarlo Spagnolo, Jonathan Williams and participants in the CEPR European Summer Symposium in Financial Markets 2011, 2nd Emerging Scholars in Banking and Finance Conference, ZEW Conference on the Quantitative Analysis in Competition Assessments and 2010 Portuguese Finance Network Conference for insightful comments and suggestions. The analysis, opinions and findings of this paper represent the views of the authors, they are not necessarily those of the Banco de Portugal or the Eurosystem.
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