The economic impact of merger control: what is special about banking?

Elena Carletti (), Philipp Hartmann and Steven Ongena

No 786, Working Paper Series from European Central Bank

Abstract: There is a long-standing debate about the special nature of banks. Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen competition policy, analyse their impact on banks and non-financial firms and explain the reactions observed with institutional features that distinguish banking from non-financial sectors. Covering nineteen countries for the period 1987 to 2004, we find that banks are special in that a more competition-oriented regime for merger control increases banks' stock prices, whereas it decreases those of non-financial firms. Moreover, bank merger targets become more profitable and larger. A major determinant of the positive bank returns, after controlling inter alia for the general quality of institutions and individual bank characteristics, is the opaqueness that characterizes the institutional setup for supervisory bank merger reviews. Thus strengthening competition policy in banking may generate positive externalities in the financial system that offset unintended adverse side effects on efficiency introduced through supervisory policies focusing on prudential considerations and financial stability. Legal arrangements governing competition and supervisory control of bank mergers may therefore have important implications for real activity. JEL Classification: G21, G28, D4

Keywords: competition policy; financial regulation; legal institutions; mergers and acquisitions; specialness of banks (search for similar items in EconPapers)
Date: 2007-07
Note: 229414
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp786.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007786

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().