The Retail Activity of Foreign Banks: Effects on Credit Supply to Households and Firms
Banks, Local Credit Markets & Credit Supply Conference, 2010
29 Pages Posted: 11 Oct 2012
Date Written: March 24, 2010
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: Suggested Citation