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

Deniz Igan, Maria Martinez Peria, Nicola Pierri and Andrea Presbitero

No 2020/275, IMF Working Papers from International Monetary Fund

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.

Keywords: Banks; Government intervention; Market power; Lerner index; WP; intervened bank; bank market power; TARP-recipient bank; intervention characteristic; A. measuring market power; Bank resolution; Loans; Global financial crisis of 2008-2009; Nonperforming loans; Global (search for similar items in EconPapers)
Pages: 34
Date: 2020-12-11
New Economics Papers: this item is included in nep-ban
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