Abstract
AbstractThis paper explores possible impact of the SSM's launch on the market power of banks in the large euro area economies. We employ the Lerner index and the Boone estimator, non‐structural measures that capture different aspects of competition. Using the results of the Lerner index, we find evidence of the significant decrease in market power for the ECB supervised entities in Austria, France, Germany and Spain. In a similar vein, the Boone indicator points towards an increase in competition among significant supervised entities of Austria, France, Germany, Italy and Spain. The evidence on changes for the total banking sector are mixed, whereas no significant effect is found for the banks remaining under national supervision. We do not find any support for significant increases in the market power of banks in Italy or Spain, suggesting that large increases in concentration do not necessarily result in anticompetitive conduct.
Highlights
The Financial Crisis of 2008 revealed that the Monetary Union is inevitably subject to a financial trilemma: financial stability, financial integration and national supervision cannot be simultaneously nurtured
This study aims to answer whether the launch of the Supervisory Mechanism (SSM) has significantly affected competition in the banking sectors of five major euro area economies: Austria, France, Germany, Italy and Spain
We recognize that significant institutions from different EU Member States might be in direct competition with each other and inquire into the competitive changes for the aggregate of the five EU countries we investigate, from here on called: EU-5
Summary
The Financial Crisis of 2008 revealed that the Monetary Union is inevitably subject to a financial trilemma: financial stability, financial integration and national supervision cannot be simultaneously nurtured. One of the key facets that such uniform supervision entails is a level playing field with diminished barriers to competition, where credit institutions across various jurisdictions have an equal opportunity to compete. This stems from a reduction in the costs of compliance by making regulatory practices and standards more uniform and consistent across countries (Tröger, 2013; Constâncio, 2014a). An increase in market power of banks might have implications for financial stability, where higher lending rates can induce risk-taking on the side of the borrowers, in turn making them more vulnerable (ECB, 2017)
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