A revenue-based frontier measure of banking competition

Posted by D. Daniel Sokol

Santiago Carbó (University of Granada), David Humphrey (FSU), and Francisco Rodríguez (University of Granada) provide A revenue-based frontier measure of banking competition.

ABSTRACT: Measuring banking competition using the HHI, Lerner index, or H-statistic can give conflicting results. Borrowing from frontier analysis, the authors provide an alternative approach and apply it to Spain over 1992-2005. Controlling for differences in asset composition, productivity, scale economies, risk, and business cycle influences, they find no differences in competition between commercial and savings banks nor between large and small institutions, but the authors conclude that competition weakened after 2000. This appears related to strong loan demand where real loan-deposit rate spreads rose and fees were stable for activities where scale economies should have been realized.