Article thumbnail

The Impact of Competition on Bank Orientation and Specialization

By H.A. Degryse and S. Ongena

Abstract

How do banks react to increased interbank competition?Recent banking theory offers conflicting predictions about the impact of competition on bank orientation í L H WKH choice of relationship based versus transactional banking í DQG EDQN LQGXVWU\ specialization.We empirically investigate the impact of interbank competition on bank branch orientation and specialization.We employ a unique data set containing detailed information on bank-firm relationships and industry classification.We find that bank branches facing stiff local competition engage relatively more in relationship-based lending but specialize somewhat less in a particular industry.Our results illustrate that competition and relationships are not necessarily inimical.competition;banks;bank lending

OAI identifier:

Suggested articles

Citations

  1. 2000a, Bank Relationships: a Survey,
  2. 2003a, Bank Concentration and Competition in Europe, (Federal Reserve Bank of Chicago,
  3. 2003b, Life-Cycle Dynamics in Industrial Sectors: The Role of Banking Market Structure, Review of the Federal Reserve Bank of St.
  4. (1975). A Statistical Model for the Analysis of Ordinal Level Dependent Variables,
  5. (2001). A Theory of Banks’ Industry Expertise, Market Power, and Credit Risk,
  6. (2000). Acquisition of Information in Loan Markets and Bank Market Power: An Empirical Investigation, (Johann Wolfgang Goethe
  7. (1990). Asymmetric Information, Bank Lending and Implicit Contracts: a Stylized Model of Customer Relationships,
  8. (2001). Asymmetric Information, Bank Lending, and Implicit Contracts: the Winner’s Curse,
  9. (1998). Availability and Cost of Credit for Small Businesses: Customer Relationships and Credit Cooperatives,
  10. (1991). Bank Commercial Loan Markets and the Role of Market Structure: Evidence from Surveys of Commercial Lending,
  11. (2003). Bank Competition and Firm Creation,
  12. (2000). Bank Reputation, Bank Commitment, and the Effects of Competition in Credit Markets,
  13. (2001). Banken und unvollkommener Wettbewerb. Empirische Beitrage zu einer Industrieokonomik der Finanzmarkte,
  14. (1995). Banking and Development,
  15. (2001). Banking Market Concentration and Consumer Credit Constraints: Evidence from the Survey of Consumer Finances, (MIT,
  16. (2001). Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data,
  17. (1990). Banking Markets and the Use of Financial Services by Small and Mediumsized Businesses, (Board of Governors of the Federal Reserve System,
  18. (2000). Banking Regulation, Competition with Product Differentiation,
  19. (2000). Can Relationship Banking Survive Competition?,
  20. (2002). Checking Accounts and Bank Monitoring, (Federal Reserve Bank of
  21. (2002). Collateral and Competition, (Federal Reserve Bank of Philadelphia,
  22. (2002). Competition and Borrower Switching in Credit Markets,
  23. (2003). Competition and Strategic Information Acquisition in Credit Markets,
  24. (2003). Competition under Credit Rationing: Theory and Evidence from Rural China,
  25. (2001). Competitive Price Discrimination,
  26. (1955). Conglomerate Bigness as a Source of Power,
  27. (2001). Contestability, Technology, and Banking,
  28. (2001). Credit Rationing, Customer Relationship, and the Number of Banks: An Empirical Analysis,
  29. (2000). Dell'Ariccia and Marquez (2003); Hauswald and Marquez
  30. (2002). Discretionary Contracts and Bank-Firm Relationships,
  31. (2003). Distance, Lending Relationships, and Competition,
  32. (2000). Diversified Specialized FIGURE 2. EMPIRICAL FINDINGS ON COMPETITION AND BANK ORIENTATION Paper Sample Degree of Competition in the Banking Sector High Low Local Markets 0 HHI in Local Market for Deposits 1 Petersen and Rajan
  33. (2003). Does Bank Competition Affect How Much Firms Can Borrow? New Evidence From the U.S., (MIT,
  34. (2001). Does Bank Concentration Lead to Concentration in Industrial Sectors, (Federal Reserve Bank of Chicago,
  35. (2001). Does Competition Kill Relationships? Inside Investment Banking,
  36. (2002). Does Distance Still Matter? The Information Revolution in Small Business Lending,
  37. (2002). Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small Banks, (Board of Governors of the Federal Reserve System,
  38. (2002). Entrepreneurship and Bank Credit Availability,
  39. (2003). Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation,
  40. (1990). Hausbankbeziehungen als Instrument der Bindung zwischen Banken und Unternehmen - Eine Theoretische und Empirische Analyse,
  41. (1975). Human Capital (National Bureau for Economic Research,
  42. (2001). Industrial Organization of Financial Systems and Strategic Use of Relationship Banking,
  43. (2003). Information and Bank Credit Allocation,
  44. (2002). Information Production and Capital Allocation: Decentralized versus Hierarchical Firms,
  45. (1986). Information Reusability, Competition and Bank Asset Quality,
  46. (2002). Initiative, Incentives and Soft Information: How Does Delegation Impact the Role of Bank Relationship Managers?,
  47. (1992). Insiders and Outsiders: the Choice between Informed and Arm's-length Debt,
  48. (2002). Investment Banking and Security Market Development: Why is Chile Different from the United States?,
  49. (2003). Learning on the Determinants of Relationship Lending,
  50. (1994). Living by the "Golden Rule": Multimarket Contact in the U.S. Airline Industry,
  51. (2001). Market Concentration and Loan Portfolios in Commercial Banking, (MIT,
  52. (2002). Market Power and Banking Failures,
  53. (1993). Market-Oriented Versus Bank-Oriented Financial Systems: Incomplete Contracts and Long Term Commitments,
  54. (1993). Monitoring Loan Quality via Checking Account Analysis,
  55. (1979). Monopolistic Competition with Outside Goods,
  56. (1994). Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game,
  57. (1978). Multi-Market Interdepence and Local Market Competition in Banking,
  58. (1999). Multimarket Competition in Banking, with an Example from the Portugese Market,
  59. (1990). Multimarket Contact and Collusive Behavior,
  60. (1982). Multimarket Contact and Economic Performance,
  61. (1999). Multimarket Contact in Banking,
  62. (1987). Multiple Market Contact between Savings and Loans,
  63. (1988). New Issues in Corporate Finance,
  64. (2001). Non-Local Lending to Small Business, (Board of Governors of the Federal Reserve System,
  65. (1996). On the Interaction between Vertical and Horizontal Product Differentiation: An Application to Banking,
  66. (1994). On the Performance of Differently Regulated Financial Institutions: Some Empirical Evidence,
  67. (1999). On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies,
  68. (1992). Promise Keeping in the Great Society:
  69. (2000). Relationship Banking: What Do We Know?,
  70. (2000). Relationship Lending Within a Bank-Based System: Evidence from European Small Business Data,
  71. (2002). Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications,
  72. (1999). The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future,
  73. (1993). The Dual Role of Demand Deposits under Asymmetric Information,
  74. (2002). The Effects of Banking Mergers on Loan Contracts,
  75. (1998). The Importance of Relationships to the Availability of Credit,
  76. (1997). The Relationship Between U.K.
  77. (1988). THEORETICAL PREDICTIONS Degree of Competition in the Banking Sector High Many Banks Low Concentration Low Few Banks High Concentration Mayer
  78. (2002). Trends in Relationship Lending and Factors Affecting Relationship Lending Efficiency,
  79. (2000). What Determines the Number of Bank Relationships? Cross-Country Evidence,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.