The Effect of Regulation on Banks’ Market Structure

Project Start:01/2016
Status:Ongoing
Researchers:Rainer Haselmann, Nora Marija Laurinaityte, Katharina Petricevic, Vikrant Vig, Christine Zulehner
Category: Financial Intermediation
Funded by:LOEWE

This project is the first part of the team project "Regulation, Competition and Financial Stability". The objective is to identify the impact of one specific reform – i.e., the introduction of the Basel II reform in 2007 – on competition in the banking market and on lending outcomes. Following the reform, large banks now have a comparative advantage especially with regard to low risk borrowers (low payday loan). This could result in potential market segmentation in the financial sector. We want to determine whether we can observe indications for changes in lending conditions (price as well as quantity) for different market segments. Using the introduction of Basel II in Germany as a natural experiment for a differences-in-differences methodology, we want to focus on changes in lending quantity and prices (interest rates) to draw conclusions about changes in the competitive structure in banking markets. This is in contrast to the previous banking literature that has mostly focused on non-structural and direct measures of bank competition such as the H-statistic and the Lerner Index.

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