Juan Fernández de Guevara

EXPLANATORY FACTORS OF MARKET POWER IN THE BANKING SYSTEM

The aim of the study is to analyse the explanatory factors of market power in the banking system. Using as laboratory the Spanish banking system in the period 1986-2002, results show an increase of market power from the mid-1990s. Of the set of variables that the model posits as explaining market power, those with the greatest explanatory power are size, efficiency and specialization; concentration is not significant. This last result shows the limitations of the approaches, studies and decision-making rules of economic policy that uses market concentration as a proxy for the degree of competition. Copyright

Inequalities in the efficiency of the banking sectors of the European Union

The aim of this study was to analyse the inequalities of cost and profit efficiency existing in the banking sectors of the European Union, and the origins of the inequalities observed. The decomposition of the Theil index shows that on the cost side the greatest differences within groups occur when the total sample is divided into institutional groups (commercial banks, saving banks, co-operative banks and other banks), the country effect and the type of productive specialization being more important in explaining the differences between groups. In profit efficiency, there are great differences between countries, but none between specialization clusters.

Banking competition and economic growth: cross-country evidence

The aim of this paper is to analyse the effect of banking competition on industry economic growth using both structural measures of competition and measures based on the new empirical industrial organisation perspective. The evidence obtained in the period 1993–2003 for a sample of 53 sectors in 21 countries indicates that financial development promotes economic growth. The results also show that bank monopoly power has an inverted-U-shaped effect on economic growth, suggesting that bank market power has its highest growth effect at intermediate values. The latter result is consistent with the literature on relationship lending, which argues that bank competition can have a negative effect on the availability of finance for companies that are informationally more opaque.

Bank Size, Market Power and Financial Stability

The financial crisis in which the world has been living since the summer of 2007 has shown the importance of the financial sector for the proper functioning of economies. For the European countries the financial crisis has signified a reduction in the volume of credit granted, decreased activity in international markets and an increase of risk and instability. Financial entities have seen how they have had to change their way of operating, adapting to a situation in which difficulties exist in obtaining finance in international markets, both in volumes and in terms of interest rates, and in which the levels of risk are substantially higher. Moreover, financial entities’ degree of risk aversion has increased considerably, which has translated into a hardening of credit conditions.

Are the Ratings Good Indicators of the Creditworthiness of the Entities that Qualify

A rating is an indicator, normally drawn up by a specialized agency, which measures the solvency of an entity or issue of assets by means of a categorical scale. The ultimate purpose of ratings is to inform other market agents (investors and regulators) regarding the solvency of the entities evaluated and/or of the assets issued. The rating reduces one of the main problems of markets: the asymmetry of information between issuers and other agents, since the latter do not have access to all the information relating to the solvency of the entity that is being rated (Losada, 2009).

Interest Rates and Net Interest Margins: The Impact of Monetary Policy

In this chapter, we examine the determinants of bank net interest margin, focusing on the effect of interest rates, and thus monetary policy decisions. The analysis is carried with a panel of banks from 32 OECD countries over the period 2003–2014. The results show a quadratic relationship between net interest margins and interest rates, implying that the variation of the latter has a greater effect when interest rates are low. An important policy implication of the results is that there is a trade-off between economic growth and financial stability associated with the impact of expansionary monetary policy when the level of interest rates is very low. As a result, if the current scenario of low and even negative interest rates persists for much longer in certain countries (such as in the Eurozone), it will have a negative effect on bank profitability and consequently on financial stability.

The Impact of European Financial Integration on Economic Growth

The international financial crisis that started in the summer of 2007 with the sub-prime crisis in the US, and became more widespread in the summer of 2008, triggered a dramatic decline in financial market activity. Once the financial turmoil exploded, it spread rapidly to the rest of the economy, having a virulent impact. Many of the economies around the world are witnessing one of the worst recessions since the 1929 crash and the Great Depression of the 1930s.