A new approach to measuring competition in the loan markets of the euro area

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Abstract:

This article is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major EU countries as well as, for comparison, the UK, the US and Japan. Our findings indicate that over the period 1994–2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840903493234

Affiliations: 1: Directorate General Economics, ECB, PO Box 160319, 60066 Frankfurt am Main, Germany 2: De Nederlandsche Bank (DNB), Supervisory Policy DivisionStrategy Department, PO Box 98NL-1000 AB Amsterdam, The Netherlands 3: International Economics and International Relations Department,Banco de España (BdE), Alcalá 4828014 Madrid, Spain

Publication date: September 1, 2011

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