IMF Working Papers

When They Go Low, We Go High? Measuring Bank Market Power in a Low-for-Long Environment

ByDeniz O Igan, Nicola Pierri, Andrea F Presbitero

May 27, 2021

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Format: Chicago

Deniz O Igan, Nicola Pierri, and Andrea F Presbitero. "When They Go Low, We Go High? Measuring Bank Market Power in a Low-for-Long Environment", IMF Working Papers 2021, 149 (2021), accessed 12/6/2025, https://doi.org/10.5089/9781513573526.001

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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

We examine trends in bank competition since the early 2000s. The Lerner index—arguably the most commonly used measure—shows evidence of a marked increase in market power in advanced economies, especially after the global financial crisis. But other frequently used indicators of banking sector competition seem much more muted. We show that the significant drop in policy rates that occurred in the aftermath of the crisis could explain the seeming disconnect. Adjusting the Lerner index for the impact of policy rates reveals that market power has been fairly constant in advanced economies—consistent with the other signals and similar to the pattern observed in emerging markets.