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Bank Competition, Borrower Competition and Interest Rates

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URI: https://hdl.handle.net/10016/19007
ISSN: 1989-8843
UXXI: DT/0000001212
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indemwp14_03.pdf (1.29 MB)
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2014-06-16
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Abstract
The effect bank competition has on interest rates should depend on the fact that borrowers compete against each other. The borrowing rate of a firm affects its ability to compete in the industrial marketplace, and ultimately, its ability to repay its loans. Thus, competition amongst borrowers acts as a limit to the amount of rents financial oligopolists can extract. I find evidence that firms that operate within areas of limited bank competition face higher rates than their peers. I also identify an innovative control group that can be used in tests of bank market structure.
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Bank competition, Small business lending
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INDEM - Working Paper Business Economic Series