The Economic Impact of Merger Control: What is Special about Banking?

60 Pages Posted: 26 Jul 2007

See all articles by Elena Carletti

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Philipp Hartmann

European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: July 2007

Abstract

There is a long-standing debate about the special nature of banks. Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen competition policy, analyze their impact on banks and non-financial firms and explain the reactions observed with institutional features that distinguish banking from non-financial sectors. Covering nineteen countries for the period 1987 to 2004, we find that banks are special in that a more competition-oriented regime for merger control increases banks' stock prices, whereas it decreases those of non-financial firms. Moreover, bank merger targets become more profitable and larger. A major determinant of the positive bank returns, after controlling inter alia for the general quality of institutions and individual bank characteristics, is the opaqueness that characterizes the institutional setup for supervisory bank merger reviews. Thus strengthening competition policy in banking may generate positive externalities in the financial system that offset unintended adverse side effects on efficiency introduced through supervisory policies focusing on prudential considerations and financial stability. Legal arrangements governing competition and supervisory control of bank mergers may therefore have important implications for real activity.

Keywords: specialness of banks, mergers and acquisitions, competition policy, legal institutions, financial specialness of banks, mergers and acquisitions, competition policy, legal institutions, financial regulation

JEL Classification: G21, G28, D4

Suggested Citation

Carletti, Elena and Hartmann, Philipp and Ongena, Steven R. G., The Economic Impact of Merger Control: What is Special about Banking? (July 2007). ECB Working Paper No. 786. Available at SSRN: https://ssrn.com/abstract=1001451

Elena Carletti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Philipp Hartmann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49 69) 1344 7356 (Phone)
(49 69) 1344 8553 (Fax)

Centre for Economic Policy Research (CEPR) - International Macroeconomics

London
United Kingdom

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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