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Measuring competition in the UK deposit-taking sector

Author

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  • J A de-Ramon, Sebastian

    (Bank of England)

  • Straughan, Michael

    (Bank of England)

Abstract

We use a new regulatory dataset to measure the intensity competition in the UK deposit-taking sector. The novelty of this study is two-fold. First, the dataset allows us to explore trends in competition intensity over an extended, 24-year period from 1989 to 2013 using data for UK-regulated firms which encompasses a wider range of firms than for previous studies. Second, we take a portmanteau approach and estimate a number of different performance-based competition measures common in the literature to support conclusions on the intensity of competition over the period. Our estimates of the Lerner index, the Panzar-Rosse H-statistic and the Boone indicator suggest that competition intensity was strong at the beginning of our sample, but became less intense in the early 2000s. However, the deposit-taker business model bundles together activities in several markets simultaneously, so strong competition in some markets can be offset by the extraction of market rents in others. Importantly, competition intensity decreased (and the ability of UK deposit-takers to extract market rents from customers increased) in the period immediately ahead of the financial crisis (2003–07).

Suggested Citation

  • J A de-Ramon, Sebastian & Straughan, Michael, 2016. "Measuring competition in the UK deposit-taking sector," Bank of England working papers 631, Bank of England.
    • Handle: RePEc:boe:boeewp:0631
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    References listed on IDEAS

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    1. Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
    2. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    3. Allen N. Berger & Leora F. Klapper & Rima Turk-Ariss, 2017. "Bank competition and financial stability," Chapters, in: Jacob A. Bikker & Laura Spierdijk (ed.), Handbook of Competition in Banking and Finance, chapter 10, pages 185-204, Edward Elgar Publishing.
    4. Mayer,Colin & Vives,Xavier (ed.), 1993. "Capital Markets and Financial Intermediation," Cambridge Books, Cambridge University Press, number 9780521443975, September.
    5. de-Ramon, Sebastian J A & Francis, William & Harris, Qun, 2016. "Bank capital requirements and balance sheet management practices: has the relationship changed after the crisis?," Bank of England working papers 635, Bank of England.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. De Bonis, Riccardo & Marinelli, Giuseppe & Vercelli, Francesco, 2018. "Playing yo-yo with bank competition: New evidence from 1890 to 2014," Explorations in Economic History, Elsevier, vol. 67(C), pages 134-151.
    2. Mahmoud Fatouh & Ioana Neamtu & Sweder van Wijnbergen, 2022. "Risk-Taking, Competition and Uncertainty: Do Contingent Convertible (CoCo) Bonds Increase the Risk Appetite of Banks?," Tinbergen Institute Discussion Papers 22-017/IV, Tinbergen Institute.
    3. de-Ramon, Sebastian & Francis, William B & Straughan, Michael, 2020. "The link between bank competition and risk in the United Kingdom: two views for policymaking," Bank of England working papers 885, Bank of England.
    4. Sebastian Jose de-Ramon & Michael Straughan, 2017. "Competition indicators for the UK deposit-taking sector," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistical implications of the new financial landscape, volume 43, Bank for International Settlements.
    5. Barrell, Ray & Nahhas, Abdulkader, 2020. "The role of lender country factors in cross border bank lending," International Review of Financial Analysis, Elsevier, vol. 71(C).
    6. Bátiz-Zuk, Enrique & Lara-Sánchez, José Luis, 2022. "Measuring the evolution of competition and the impact of the financial reform in the Mexican banking sector, 2008–2019," Research in International Business and Finance, Elsevier, vol. 59(C).
    7. de Ramon, Sebastian & Francis, William & Milonas, Kristoffer, 2017. "An overview of the UK banking sector since the Basel Accord: insights from a new regulatory database," Bank of England working papers 652, Bank of England.
    8. de-Ramon, Sebastian & Francis, William & Straughan, Michael, 2018. "Bank competition and stability in the United Kingdom," Bank of England working papers 748, Bank of England.
    9. Rajan, Aniruddha & Willison, Matthew, 2018. "Does lender type matter for the pricing of loans?," Bank of England working papers 767, Bank of England.
    10. Fatouh, Mahmoud & Neamțu, Ioana & van Wijnbergen, Sweder, 2021. "Risk-taking and uncertainty: do contingent convertible (CoCo) bonds increase the risk appetite of banks?," Bank of England working papers 938, Bank of England.

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    More about this item

    Keywords

    Competition; banks; deposit-takers;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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