State Aid and Competition in the European Banking Markets

73 Pages Posted: 2 Feb 2021

See all articles by Falk Hendrik Laser

Falk Hendrik Laser

Darmstadt University of Technology - Department of Law and Economics

Date Written: January 30, 2021

Abstract

I investigate whether bank bailouts since the outbreak of the financial crisis affected competition in the European banking markets. Using a unique dataset on large bank rescues I compare the development of market power of rescued and non-rescued banks between 2000 and 2018. I find that bank bailout coincides with a substantial drop of six percentage points in the Lerner index. Effects are heterogeneous and driven by bank rescues directly after the outbreak of the financial crisis in 2008 and not by bank rescues triggered during the European sovereign debt crisis starting in 2010. My findings cast positive light on European competition policy as banks do not appear to have capitalized on rescue money in terms of market power. Protecting competition in European banking markets remains a topical policy issue in light of rising levels of market power and potential public interventions in the course of the ongoing COVID-19 pandemic.

Keywords: State aid, financial crisis, bank bailout, competition

JEL Classification: G01, G21, G28, H81, L40

Suggested Citation

Laser, Falk Hendrik, State Aid and Competition in the European Banking Markets (January 30, 2021). Available at SSRN: https://ssrn.com/abstract=3776254 or http://dx.doi.org/10.2139/ssrn.3776254

Falk Hendrik Laser (Contact Author)

Darmstadt University of Technology - Department of Law and Economics ( email )

Hochschulstraße 1
S103-187
Darmstadt, Hesse D-64289
Germany

HOME PAGE: http://https://www.vwl2.wi.tu-darmstadt.de/laser

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