The Retail Activity of Foreign Banks in Italy: Effects on Credit Supply to Households and Firms

41 Pages Posted: 13 Dec 2009 Last revised: 4 Mar 2010

Date Written: June 10, 2009

Abstract

This paper investigates the effects of the increasing activity of foreign banks in Italy, distinguishing between credit granted to households and firms. Foreign banks display a differentiated degree of business expansion across the provinces, we exploit this variability to measure how foreign banks affect competition and test it with reference to: i) a market share instability index ; ii) interest rates; iii) the collateral requested. Our results, over the period 1997-2006, show that an increase in foreign intermediaries’ market share leads to a less stable market share index. As for mortgage loans to households, this enhanced competitive pressure implies a reduction in the average interest rate applied and an increase in the loans granted with respect to collateral. We do not find a significant impact on the average interest rate conditions applied to firms, although, in the most recent period, a reduction in the collateral on loans with longer maturity has emerged.

Keywords: foreign banks, credit market competition

JEL Classification: F23, G21, L10

Suggested Citation

Infante, Luigi and Rossi, Paola, The Retail Activity of Foreign Banks in Italy: Effects on Credit Supply to Households and Firms (June 10, 2009). Bank of Italy Temi di Discussione Working Paper No. 714, Available at SSRN: https://ssrn.com/abstract=1521542 or http://dx.doi.org/10.2139/ssrn.1521542

Luigi Infante (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paola Rossi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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