Abstract
We analyze the evolution of market power in the main banking sectors of the European Union. The evolution of the relative margins does not show an increase in the degree of competition within the EU. The explanatory factors of the relative margins most directly related to market power are not significant, and even have a negative influence (concentration in the deposits market). The size and efficiency of banks, default risk, and the economic cycle have a notable capacity to explain the behavior of the market power. The results show the inadequacy of using concentration measures as proxy for the competition environment in banking markets.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Adams, R.A., L.-H. Roller, and R.C. Sickle. “Market Power in Outputs and Inputs: An Empirical Application to Banking.” Finance and Economics Discussion Series. Washington: Board of Governors of the Federal Reserve System, 2002, 52.
Angelini, P., and N. Cetorelli. “The Effects of Regulatory Reform on Competition in the Banking Industry.” Journal of Money, Credit and Banking 35 (2003), 663–684.
Berg, S.A., and M. Kim. “Oligopolistic Interdependence and the Structure of Production in Banking: An Empirical Evaluation.” Journal of Money Credit and Banking 26 (1994), 309–322.
Berger, Allen N. “The Profit-Relationship in Banking-Test of Market-Power and Efficient-Structure Hypothesis.” Journal of Money, Credit and Banking 27 (1995), 405–431.
Berger, Allen N., A. Demirgüç-Kunt, Ross Levine, and J. Haubrich. “Bank Concentration and Competition: An Evolution in the Making.” Journal of Money, Credit and Banking 35 (2003), in press.
Bikker, J.A., and K. Haaf. “Competition, Concentration and Their Relationship: An Empirical Analysis of the Banking Industry.” Journal of Banking and Finance 26 (2002), 2191–2214.
Cabral, I., F. Dierick, and J. Vesala. Banking Integration in the Euro Area, Occasional Paper Series, December, European Central Bank, 2002.
Corvoisier, S., and R. Gropp. “Bank Concentration and Retail Interest Rates.” Journal of Banking and Finance 26 (2002), 2155–2189.
De Bandt, O., and E.P. Davis. “Competition, Contestability and Market Structure in European Banking Sectors on the Eve of EMU.” Journal of Banking and Finance 24 (2000), 1045–1066.
De Young R., and I. Hasan. “The Performance of the Novo Commercial Banks: A Profit Efficiency Approach.” Journal of Banking and Finance 22 (1998), 565–587.
European Central Bank: “EU Banks’ Income Structure.” April (2000).
European Commission: Financial Services. Implementing the Framework for Financial Markets: Action Plan, Communication of the Commission, COM232, 11.05.99, 1999.
European Commission. Report by the Economic and Financial Committee (EFC) on EU financial integration, Directorate-General for Economic and Financial Affairs, Economic Papers No. 171, ECFIN/194/02-EN May, 2002a.
European Commission. Study to Analyse, Compare, and Apply Alternative Indicators and Monitoring Methodologies to Measure the Evolution of Capital Market Integration in the European Union, Report for the European Commission, CSEF (Adam, K., Jappelli, T., Menichini, A., Padula, M., and Pagano, M.), (2002b).
Freixas, X., and J.C. Rochet. Microeconomics of Banking, MIT Press: Massachusetss Institute of Technology, 1997.
Green, E., and R. Porter. “Non-Cooperative Collusion Under Imperfect Price Information.” Econometrica 52 (1984), 87–100.
Heinemann, F., and M. Jopp. The Benefits of Working European Retail Market for Financial Services: Report to the European Financial Services Round Table, ZEW&IEP (2002).
Keeley, M.C. “Deposit Insurance, Risk, and Market Power in Banking.” American Economic Review 80, no. 5 (1990), 1183–1200.
Klein, M. “A Theory of the Banking Firm.” Journal of Money, Credit and Banking 3 (1971), 205–218.
Manna, M. “Developing Statistical Indicators of the Integration of the Euro Area Banking System.” Working Paper Series No. 300, European Central Bank, 2004.
Maudos, J., and J. Fernández de Guevara. “Factors Explaining the Interest Margin in the Banking Sectors of the European Union.” Journal of Banking and Finance 28 (2004), 2259–2281.
Maudos, J., J.M. Pastor, and F. Pérez. “Competition and Efficiency in the Spanish Banking Sector: The Importance of Specialisation.” Applied Financial Economics 2 (2002), 505–516.
Molyneux, P., D.M. Lloyd-Williams, and J. Thornton. “Competitive Conditions in European Banking.” Journal of Banking and Finance 18 (1994), 445–459.
Monti, M. “Deposit, Credit, and Interest Rate Determination Under Alternative Bank Objetives.” In: G.P. Szego, and K. Shell, eds., Mathematical Methods in Investment and Finance, Amsterdam: North-Holland, 1972.
Nathan, A., and E. Neave. “Competition and Contestability in Canada’s Financial System: Empirical Results.” Canadian Journal of Economics 22 (1989), 576–594.
Neven, D., and L.-H. Röller. “An Aggregate Structural Model of Competition in the European Banking Industry.” International Journal of Industrial Organization 17 (1999), 1059–1074.
Prescott, H., and A. McCall. “Market Power and Structure and Commercial Bank Instalment Lending.” Journal of Money, Credit and Banking 7, no. 4 (1975), 449–467.
Rotemberg, J., and G. Saloner. “A Supergame-Theoretic Model of Prices Wars During Booms.” American Economic Review 76 (1986), 390–407.
Salas, V., and M. Oroz. “Competencia y eficiencia en la intermediación financiera en España: 1977–2001.” Moneda y Credito 217 (2003), 73–99.
Saurina, J. “Deregulación, poder de mercado y solvencia en la banca española.” Investigaciones Economicas 31 (1997), 3–27.
Shaffer, S. “Competition in the US Banking Industry.” Economics Letters 29 (1989), 321–323.
Shaffer, S. “A Test of Competition in Canadian Banking.” Journal of Money, Credit and Banking 25 (1993), 49–61.
Shaffer, S., and J. Disalvo. “Conduct in Banking Duopoly.” Journal of Banking and Finance 18 (1994), 1063–1082.
Suominem, M. “Measuring Competition in Banking: A Two Product Model.” Scandinavian Journal of Economics 96 (1994), 95–110.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Fernández de Guevara, J., Maudos, J. & Pérez, F. Market Power in European Banking Sectors. J Finan Serv Res 27, 109–137 (2005). https://doi.org/10.1007/s10693-005-6665-z
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10693-005-6665-z