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

Ralph de Haas, Liping Lu, S.R.G. Ongena

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages42
Volume2018-027
Publication statusPublished - 4 Sep 2018

Publication series

NameCentER Discussion Paper
Volume2018-027

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Keywords

  • bilateral bank competition
  • multimarket contact
  • credit constraints

Cite this

de Haas, R., Lu, L., & Ongena, S. R. G. (2018). Clear and Close Competitors? On the Causes and Consequences of Bilateral Competition between Banks. (CentER Discussion Paper; Vol. 2018-027). Tilburg: CentER, Center for Economic Research.