Bank Competition, Concentration and Efficiency in the Single European Market

28 Pages Posted: 16 Jun 2006

See all articles by Barbara Casu

Barbara Casu

City University London - Sir John Cass Business School

Claudia Girardone

University of Essex - Essex Business School

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Abstract

The deregulation of financial services in the European Union (EU), together with the establishment of the Economic and Monetary Union, aimed at the creation of a level playing-field in the provision of banking services across the EU. The plan was to remove entry barriers and to foster both competition and efficiency in national banking markets. However, one of the effects of the regulatory changes was to spur a trend towards consolidation, resulting in the recent wave of mergers and acquisitions. To investigate the impact of increased consolidation on the competitive conditions of the EU banking markets, we employ both structural (concentration ratios) and non-structural (Panzar-Rosse statistic) concentration measures. Using bank-level balance sheet data for the major EU banking markets, in a period following the introduction of the Single Banking Licence (1997-2003), this paper also investigates the factors that may influence the competitive conditions. Specifically, we control for differences in efficiency estimates, structural conditions and institutional characteristics. The results seem to suggest that the degree of concentration is not necessarily related to the degree of competition. We also find little evidence that more efficient banking systems are also more competitive. The relationship between competition and efficiency is not a straightforward one: increased competition has forced banks to become more efficient but increased efficiency does not seem to be fostering more competitive EU banking systems.

Suggested Citation

Casu, Barbara and Girardone, Claudia, Bank Competition, Concentration and Efficiency in the Single European Market. Manchester School, Vol. 74, No. 4, pp. 441-468, July 2006. Available at SSRN: https://ssrn.com/abstract=908703 or http://dx.doi.org/10.1111/j.1467-9957.2006.00503.x

Barbara Casu (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Claudia Girardone

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206874156 (Phone)
+44 1206873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=1045

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