The Impact of Alternative Forms of Bank Consolidation on Credit Supply and Financial Stability

55 Pages Posted: 21 Jul 2020

See all articles by Sergio Mayordomo

Sergio Mayordomo

Banco de España

Nicola Pavanini

Tilburg University; Tilburg University - Tilburg University School of Economics and Management; CEPR IO Programme

Emanuele Tarantino

University of Mannheim - Department of Economics; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: July 10, 2020

Abstract

Between 2009 and 2011, the Spanish banking system underwent a restructuring process based on consolidation of savings banks. The program’s design allows us to study how alternative forms of consolidation affect credit supply and financial stability. Compared to bank business groups, we find that bank mergers’ market power produces a contraction in credit supply, higher interest rates, but also a reduction in non-performing loans. We then estimate a structural model of credit demand and supply. We show that short-run welfare gains from improved financial stability outweigh losses from reduced credit supply, while small long-run cost efficiencies generate large welfare increases.

Keywords: bank consolidation, mergers, business groups, credit supply, financial stability, welfare

JEL Classification: G21, G28, G32, G34

Suggested Citation

Mayordomo, Sergio and Pavanini, Nicola and Tarantino, Emanuele, The Impact of Alternative Forms of Bank Consolidation on Credit Supply and Financial Stability (July 10, 2020). Banco de Espana Working Paper No. 2021, Available at SSRN: https://ssrn.com/abstract=3648114 or http://dx.doi.org/10.2139/ssrn.3648114

Sergio Mayordomo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Nicola Pavanini

Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://https://sites.google.com/site/nicolapavanini/

Tilburg University - Tilburg University School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

CEPR IO Programme ( email )

London
United Kingdom

Emanuele Tarantino

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
29
Abstract Views
185
PlumX Metrics