Competitiveness and Market Contestability of Major UK Banks

Kent Matthews, Victor Murinde and Tianshu Zhao

No E2006/6, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We undertake an empirical assessment of the competitiveness and market contestability of the major British banks post-1980 - a period of major structural changes, mergers, demutualizations and acquisitions. Specifically, we estimate and test the Rosse-Panzar model on a panel of 12 banks for the period 1980-2004,furthermore, we buttress the Rosse-Panzar methodology by estimating the ratio of Lerner indices obtained from interest rate setting equations. The sample of banks corresponds closely to the major British Banking Groups as specified by the British Banking Association. Our results confirm the consensus finding that the British banking market can be described as monopolistically competitive. We also find that on the core business of balance sheet activity, British banks have remained as competitive in the 1990s as in the 1980s. This finding is further supported by evidence from the ratio of Lerner indices for loans and deposits. However, we find a significant worsening of competitiveness on the non-core (off-balance sheet) business of the banks.

Keywords: Competitive conditions in banking; market contestability; UK (search for similar items in EconPapers)
JEL-codes: D24 G21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006-01
New Economics Papers: this item is included in nep-com, nep-fin and nep-fmk
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Published in Journal of Banking and Finance 2007, 31 , 7, pp. 2025-2042.

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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2006/6

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