Government Intervention and Bank Market Power: Lessons from the Global Financial Crisis for the COVID-19 Crisis

Author/Editor:

Brandon Tan ; Deniz O Igan ; Maria Soledad Martinez Peria ; Nicola Pierri ; Andrea F Presbitero

Publication Date:

December 11, 2020

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

The COVID-19 pandemic could result in large government interventions in the banking industry. To shed light on the possible consequences on market power, we rely on the experience of the global financial crisis and exploit granular data on government interventions in more than 800 banks across 27 countries between 2007 and 2017. For identification, we use a multivariate matching method. We find that intervened banks experience a significant decline in market power with respect to matched non-intervened banks. This effect is more pronounced for larger and longer interventions and is driven by a rise in costs—mostly because of higher loan impairment charges—which is not followed by a similar increase in prices.

Series:

Working Paper No. 2020/275

Subject:

Frequency:

regular

English

Publication Date:

December 11, 2020

ISBN/ISSN:

9781513563886/1018-5941

Stock No:

WPIEA2020275

Format:

Paper

Pages:

34

Please address any questions about this title to publications@imf.org