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European Banking: An Overview Read chapter Read first chapter

2016 | OriginalPaper | Chapter

8. Competition in EU Banking

Authors : Olivier De Jonghe, Maaike Diepstraten, Glenn Schepens

Published in: The Palgrave Handbook of European Banking

Publisher: Palgrave Macmillan UK

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Abstract

This chapter discusses recent EU-wide movements in bank competition and concentration. We start with a concise overview of the most frequently used competition and concentration measures. Given that different measures may capture different aspects of bank competition, we focus on the differences and similarities between concentration and competition measures for a broad sample of EU banks. We show that a high level of bank concentration does not necessarily imply a low level of competition and that competition measures such as the Boone indicator (Boone, The Economic Journal, 118(531), 1245–1261, 2008) and the H-statistic (Panzar and Rosse, The Journal of Industrial Economics, 35(4), 443–456, 1987) might capture different aspects of bank competition. Next, we discuss the evolution of bank competition in the EU over time. We end with an overview of recent findings on three important issues concerning bank competition: the impact of bank competition on bank risk-taking, the relationship between bank competition and systemic risk and the relationship between bank competition and switching costs for bank customers.

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Footnotes
1
We refer to Liu et al. (2010) for a review of studies using the H-statistic.
 
2
The sample includes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Korea (South), Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom and United States.
 
3
Schiersch and Schmidt-Ehmcke (2011) also express their doubts on the empirical applicability of the Boone indicator, albeit in a different setup for non-financial firms. They test the robustness of the measure by focusing on cartel cases in German manufacturing enterprises and expect to find an increase in competition after the debunking of a cartel. The authors conclude that the Lerner index indicates changes in competition as expected, but state that the Boone indicator is not an empirically robust indicator.
 
4
All Eurozone countries participate automatically in the SSM. Other EU countries that do not yet have the euro as their currency can choose to participate. To do so, their national supervisors enter into “close cooperation” with the European Central Bank.
 
5
For more in-depth reading on the banking union, we refer to Chap. 17 of this handbook. Chapter 4 deals with various issues of banks’ business models, of which size and scope are crucial determinants.
 
6
According to Saunders and Cornett (2014), three factors affect the likelihood with which potential conflicts of interest in financial conglomerates turn into realized conflicts of interest. They are (1) imperfect information on banks, (2) the level of concentration in the banking sector, and (3) the value of reputation. De Jonghe et al. (2015) find empirical support for each of these three channels, but we focus here only on the role of bank concentration.
 
7
Empathy is defined as “the perception that a business has the consumers’ needs at the core of its behavior”, p. 514. Responsiveness is defined as “the willingness to help customers and provide prompt service”, p. 514. Reliability is defined as “the ability to perform the promised service dependably”, p. 514.
 
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Metadata
Title
Competition in EU Banking
Authors
Olivier De Jonghe
Maaike Diepstraten
Glenn Schepens
Copyright Year
2016
Book
The Palgrave Handbook of European Banking

Print ISBN: 978-1-137-52143-9

Electronic ISBN: 978-1-137-52144-6

Copyright Year: 2016

DOI
https://doi.org/10.1057/978-1-137-52144-6_8