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The impact of alternative forms of bank consolidation on credit supply and financial stability

Sergio Mayordomo (), Nicola Pavanini () and Emanuele Tarantino
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Nicola Pavanini: Tilburg University and CEPR

No 2021, Working Papers from Banco de España, Working Papers Homepage

Abstract: Between 2009 and 2011, the Spanish banking system underwent a restructuring process based on consolidation of savings banks. The program’s design allows us to study how alternative forms of consolidation affect credit supply and financial stability. Compared to bank business groups, we find that bank mergers’ market power produces a contraction in credit supply, higher interest rates, but also a reduction in non-performing loans. We then estimate a structural model of credit demand and supply. We show that short-run welfare gains from improved financial stability outweigh losses from reduced credit supply, while small long-run cost efficiencies generate large welfare increases.

Keywords: bank consolidation; mergers; business groups; credit supply; financial stability; welfare (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G34 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2020-07
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-com
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