Edited by Jacob A. Bikker and Laura Spierdijk
Chapter 18: Bank market power and loan growth
The authors explore the impact of bank market power on the provision of credit using multi-year, bank-level data from 131 countries. Their findings reconcile the opposing views of the theory on this matter and indicate the existence of a U-shaped relationship between bank market power and loan growth. Specifically, they find that high market power, as measured by high values of the Lerner index, diminishes bank loan growth in accordance with the traditional industrial organization approach. However, they also document that, after a certain threshold, a further increase in bank market power results in greater credit expansion in line with the information hypothesis. These findings are robust to the inclusion of country-specific time effects and to alternative variants of the Lerner index.
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