TY - JOUR

T1 - Competition in fragmented markets

T2 - New evidence from the German banking industry in the light of the subprime crisis

AU - Moch, Nils

PY - 2013/8/1

Y1 - 2013/8/1

N2 - Of all of the EU member states, Germany has the largest banking market. However, not all German banking institutions necessarily face fierce competition. Because the industry is highly fragmented, strict separation of the three existing banking pillars may impede competition, with negative effects on financial stability. We assess the competitive stances of 1,888 universal banks from 2001 to 2009 by using the Panzar-Rosse revenue test. We find evidence that measuring competition at an average country level does not necessarily generate valid evaluations of fragmented markets. In addition, we find no clear indication that either the particular objectives of cooperative and savings banks or the legal protection of these institutions impedes competition or discriminates against private banks. Therefore, as long as the relationship between competition and financial stability is dubious, the overall effect and the social costs or benefits of political measures that influence the structure of the German banking market are at least questionable.

AB - Of all of the EU member states, Germany has the largest banking market. However, not all German banking institutions necessarily face fierce competition. Because the industry is highly fragmented, strict separation of the three existing banking pillars may impede competition, with negative effects on financial stability. We assess the competitive stances of 1,888 universal banks from 2001 to 2009 by using the Panzar-Rosse revenue test. We find evidence that measuring competition at an average country level does not necessarily generate valid evaluations of fragmented markets. In addition, we find no clear indication that either the particular objectives of cooperative and savings banks or the legal protection of these institutions impedes competition or discriminates against private banks. Therefore, as long as the relationship between competition and financial stability is dubious, the overall effect and the social costs or benefits of political measures that influence the structure of the German banking market are at least questionable.

KW - Economics

KW - Banking industry

KW - Competition

KW - Financial stability

KW - Panzar-Rosse

KW - Too-big-to-fail

KW - Management studies

UR - http://www.scopus.com/inward/record.url?scp=84878654170&partnerID=8YFLogxK

U2 - 10.1016/j.jbankfin.2013.04.029

DO - 10.1016/j.jbankfin.2013.04.029

M3 - Journal articles

AN - SCOPUS:84878654170

VL - 37

SP - 2908

EP - 2919

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

IS - 8

ER -