Handbook of Competition in Banking and Finance
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Handbook of Competition in Banking and Finance

Edited by Jacob A. Bikker and Laura Spierdijk

For academics, regulators and policymaker alike, it is crucial to measure financial sector competition by means of reliable, well-established methods. However, this is easier said than done. The goal of this Handbook is to provide a collection of state-of-the-art chapters to address this issue. The book consists of four parts, the first of which discusses the characteristics of various measures of financial sector competition. The second part includes several empirical studies on the level of, and trends in, competition across countries. The third part deals with the spillovers of market power to other sectors and the economy as a whole. Finally, the fourth part considers competition in banking submarkets and subsectors.
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Chapter 18: Bank market power and loan growth

Manthos D. Delis, Iftekhar Hasan, Sotirios Kokas, Liuling Liu and Nikolaos Mylonidis

Abstract

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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