The competitive effect of a bank megamerger on credit supply

We study the effect of a merger between two large banks on credit market competition. We identify the competitive effect of the merger using matched loan-level and firm-level data and exploiting variation in the merging banks’ market overlap across local lending markets. On the credit market side, w...

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Bibliographic Details
Published inJournal of banking & finance Vol. 93; pp. 151 - 161
Main Authors Fraisse, Henri, Hombert, Johan, Lé, Mathias
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.08.2018
Subjects
Bank mergers
Credit supply
Megabanks
SMEs
Credit supply
Megabanks
SMEs
Bank mergers
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Summary:We study the effect of a merger between two large banks on credit market competition. We identify the competitive effect of the merger using matched loan-level and firm-level data and exploiting variation in the merging banks’ market overlap across local lending markets. On the credit market side, we find a reduction in lending, in particular through termination of relationships. In the average market, bank credit decreases by 2.7%. On the real side, firm exit increases by 4%, whereas firms that do not exit and firms that start up experience no adverse real effect on investment and employment.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2018.06.011