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Clear and Close Competitors?: On the Causes and Consequences of Bilateral Competition between Banks

Ralph De Haas (), Liping Lu and Steven Ongena ()
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Liping Lu: Tilburg University, Center For Economic Research

No 2018-027, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: We interview 361 European bank CEOs to identify their banks’ main competitors. We then provide evidence on the drivers of bilateral bank competition, construct a novel competition measure at the locality level, and assess how well it explains variation in firms’ credit constraints. We find that banks identify another bank as a main competitor in small-business lending when their branch networks overlap, when both are foreign owned or relationship oriented, or when the potential competitor has fewer hierarchical layers. Intense bilateral bank competition increases local credit constraints, especially for small firms, as competition may impede the formation of lending relationships.

Keywords: bilateral bank competition; multimarket contact; credit constraints (search for similar items in EconPapers)
JEL-codes: D22 D40 F36 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-bec and nep-com
Date: 2018
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