Friday, October 28, 2011

Bank Competition in the EU: How Has It Evolved?

Posted by D. Daniel Sokol

Laurent Weill (LaRGE Research Center, Universite de Strasbourg) asks Bank Competition in the EU: How Has It Evolved?

ABSTRACT: Economic integration on the EU banking markets is expected to favor competition, which should provide economic gains. However, even if there is a commonly accepted view in favor of enhanced bank competition during the last decade, no study has been performed in the 2000s showing this trend. In this paper, we aim to fill this gap by measuring the evolution of bank competition in all EU countries during the 2000s. We estimate the Lerner index and the H-statistic for a sample of banks from all EU countries. We provide evidence of a general improvement in bank competition in the EU, even if cross-country differences are observed in the pattern of the evolution of bank competition. We check whether convergence in bank competition has taken place on the EU banking markets, by applying and convergence tests for panel data. We show convergence in bank competition. These findings are also observed with standard competition me! asures (Herfindahl index, profitability indicators). We thus support the view th at bank integration has taken place in the European Union.

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