What is it about?

We estimate a number of measures and proxies for competition between firms in the UK deposit-taking sector to form a view on how competition has changed over the 20 year period ahead of the global financial crisis.

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Why is it important?

Competition is a difficult concept to measure. We take a portmanteau approach and estimate a number of measures to provide a greater degree of confidence in our findings of the evolution of competition over the sample period. This study is also the first of its kind for the UK, and uses a novel regulatory database. The database includes all regulated UK deposit-takers, and includes privately- or mutually-owned firms that are usually excluded from similar studies.

Perspectives

Following the financial crisis, there was a debate as to whether the competition in the deposit-taking sector influenced the size of the economic impact. Some argued that more competitive banking systems (e.g. US and UK) faced much higher impacts than less competitive / more concentrated banking systems (e.g. Australia, Canada). However, measures of competition of these economies were usually partial at best. We demonstrated that competition in the UK sector declined markedly in the years leading up to the financial crisis. While not a causal study, this outcome suggests that, at least for the UK, it was not the case that 'too much competition' was a factor in driving the economic impact on the UK economy.

Michael Rothwell Straughan
Bank of England

Read the Original

This page is a summary of: Measuring Competition in the UK Deposit-Taking Sector, SSRN Electronic Journal, January 2016, Elsevier,
DOI: 10.2139/ssrn.2880448.
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