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What Drives Bank Competition? Some International Evidence

Stijn Claessens () and Luc Laeven

No 4000, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using bank-level data, we apply the Panzar and Rosse (1987) methodology to estimate the extent to which changes in input prices are reflected in revenues earned by specific banks in 50 countries? banking systems. We then relate this competitiveness measure to indicators of countries? banking system structures and regulatory regimes. We find systems with greater foreign bank entry, and fewer entry and activity restrictions to be more competitive. We find no evidence that our competitiveness measure negatively relates to banking system concentration. Our findings confirm that contestability determines effective competition, especially through allowing (foreign) bank entry and reducing activity restrictions on banks.

Keywords: Banking; Contestability; Competition; Panzer and rosse (search for similar items in EconPapers)
JEL-codes: D40 G21 L11 L80 O16 (search for similar items in EconPapers)
Date: 2003-08
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