Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153220
Authors: 
Carletti, Elena
Hartmann, Philipp
Ongena, Steven
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 786
Abstract: 
There is a long-standing debate about the special nature of banks. Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen competition policy, analyze their impact on banks and non-financial firms and explain the reactions observed with institutional features that distinguish banking from non-financial sectors. Covering nineteen countries for the period 1987 to 2004, we find that banks are special in that a more competition-oriented regime for merger control increases banks’ stock prices, whereas it decreases those of non-financial firms. Moreover, bank merger targets become more profitable and larger. A major determinant of the positive bank returns, after controlling inter alia for the general quality of institutions and individual bank characteristics, is the opaqueness that characterizes the institutional setup for supervisory bank merger reviews. Thus strengthening competition policy in banking may generate positive externalities in the financial system that offset unintended adverse side effects on efficiency introduced through supervisory policies focusing on prudential considerations and financial stability. Legal arrangements governing competition and supervisory control of bank mergers may therefore have important implications for real activity.
Subjects: 
competition policy
financial regulation
legal institutions
mergers and acquisitions
Specialness of banks
JEL: 
G21
G28
D4
Document Type: 
Working Paper

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