Bank market power and lending during the global financial crisis. (December 2018) - Cubillas, Elena
Highlights: Analysis on how the GFC affects bank market power and bank loans in 17 countries. Market power counteracts the negative impact of the GFC on banks' supply of loans. Less restrictions on bank activities increase the positive effect of market power. Less supervisory power increase the positive effect of market power. Abstract: This research examines how the Global Financial Crisis (GFC) affected banks' supply of credit, not only in a direct way but also indirectly through changes in bank market power. We use a sample of 735 banks from 17 countries during the 2003–2012 period. We find that the direct negative impact of the GFC on banks' supply of loans is counteracted by an indirect effect through the increased level of bank market power in the years after the onset of the crisis. This result is particularly relevant in countries with less stringent restrictions on bank activities and less supervisory power.