The retail activity of foreign banks in Italy: effects on credit supply to households and firms

Luigi Infante and Paola Rossi

No 714, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper investigates the effects of the increasing activity of foreign banks in Italy, distinguishing between credit granted to households and firms. Foreign banks display a differentiated degree of business expansion across the provinces, we exploit this variability to measure how foreign banks affect competition and test it with reference to: i) a market share instability index ; ii) interest rates; iii) the collateral requested. Our results, over the period 1997-2006, show that an increase in foreign intermediaries� market share leads to a less stable market share index. As for mortgage loans to households, this enhanced competitive pressure implies a reduction in the average interest rate applied and an increase in the loans granted with respect to collateral. We do not find a significant impact on the average interest rate conditions applied to firms, although, in the most recent period, a reduction in the collateral on loans with longer maturity has emerged.

Keywords: foreign banks; credit market competition (search for similar items in EconPapers)
JEL-codes: E44 G21 L10 (search for similar items in EconPapers)
Date: 2009-06
New Economics Papers: this item is included in nep-ban and nep-com
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_714_09

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