Bank Mergers and Diversification: Implications for Competition Policy

Albert Banal‐Estañol and Marco Ottaviani
Authors registered in the RePEc Author Service: Albert Banal-Estanol

European Financial Management, 2007, vol. 13, issue 3, 578-590

Abstract: This paper analyses competition and mergers among risk averse banks. We show that the correlation between the shocks to the demand for loans and the shocks to the supply of deposits induces a strategic interdependence between the two sides of the market. We characterise the role of diversification as a motive for bank mergers and analyse the consequences of mergers on loan and deposit rates. When the value of diversification is sufficiently strong, bank mergers generate an increase in the welfare of borrowers and depositors. If depositors have more correlated shocks than borrowers, bank mergers are relatively worse for depositors than for borrowers.

Date: 2007
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Citations: View citations in EconPapers (7)

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https://doi.org/10.1111/j.1468-036X.2007.00372.x

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Working Paper: Bank mergers and diversification: implications for competition policy (2006)
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