Government Intervention and Bank Market Power: Lessons from the Global Financial Crisis for the COVID-19 Crisis

35 Pages Posted: 26 Jan 2021

See all articles by Brandon Tan

Brandon Tan

Harvard University

Deniz Igan

International Monetary Fund (IMF) - Financial Studies Division

Maria Soledad Martinez Peria

International Monetary Fund (IMF)

Nicola Pierri

International Monetary Fund (IMF)

Andrea Presbitero

Johns Hopkins University

Date Written: December 1, 2020

Abstract

The COVID-19 pandemic could result in large government interventions in the banking industry. To shed light on the possible consequences on market power, we rely on the experience of the global financial crisis and exploit granular data on government interventions in more than 800 banks across 27 countries between 2007 and 2017. For identification, we use a multivariate matching method. We find that intervened banks experience a significant decline in market power with respect to matched non-intervened banks. This effect is more pronounced for larger and longer interventions and is driven by a rise in costs-mostly because of higher loan impairment charges-which is not followed by a similar increase in prices.

JEL Classification: G21, H81, D40, G28, G23, G01

Suggested Citation

Tan, Brandon and Igan, Deniz and Martinez Peria, Maria Soledad and Pierri, Nicola and Presbitero, Andrea, Government Intervention and Bank Market Power: Lessons from the Global Financial Crisis for the COVID-19 Crisis (December 1, 2020). IMF Working Paper No. 2020/275, Available at SSRN: https://ssrn.com/abstract=3772479

Brandon Tan (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Deniz Igan

International Monetary Fund (IMF) - Financial Studies Division ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Maria Soledad Martinez Peria

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nicola Pierri

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Andrea Presbitero

Johns Hopkins University ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

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

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