Testing for Competition Among German Banks

Economic Research Centre Discussion Paper No. 04/02

57 Pages Posted: 26 Mar 2002

See all articles by Hannah Sabine Hempell

Hannah Sabine Hempell

European Central Bank (ECB) - Directorate General Economics

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Date Written: January 2002

Abstract

Given the marked reduction in the number of banks in Germany during recent years, the study estimates competitive behavior in the German banking system by applying an empirical method developed by Panzar and Rosse (1987). By estimating the banks' reduced form revenue functions, the sums of their estimated factor price elasticities which constitute the so called H-statistics provide information about banks' competitive behavior. Based on the micro data of banks' balance sheets and profit and loss accounts for the years 1993-1998, the hypotheses of perfect collusion as well as of perfect competition can be rejected by means of panel-econometric estimations. For individual categories of banks significant differences were found with respect to savings banks and cooperative banks, on the one hand, and credit banks, on the other, as well as for several size categories. However, despite the decrease in the number of banks in Germany during the investigated period and a slight increase in concentration during that time, there are no clear indications of a different competitive behavior in the second half of the time period under investigation.

Keywords: Banking, Industrial Organization

JEL Classification: G21, L11, C23

Suggested Citation

Hempell, Hannah Sabine, Testing for Competition Among German Banks (January 2002). Economic Research Centre Discussion Paper No. 04/02, Available at SSRN: https://ssrn.com/abstract=304343 or http://dx.doi.org/10.2139/ssrn.304343

Hannah Sabine Hempell (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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