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Shadow banking and competition: Decomposing market power by activity


Ongena, Steven; Titotto, Daniele (2017). Shadow banking and competition: Decomposing market power by activity. In: Bikker, Jaap; Spierdijk, Laura. Research Handbook on Competition in Banking and Finance. Cheltenham UK: Edward Elgar Publishing, 264-304.

Abstract

The term “shadow banking” refers to credit intermediation performed outside the regulated perimeter of traditional lenders. Banks, however, do play a significant role in it. The authors review the origins and characteristics of the shadow banking system, investigate how banks control various steps of the securitization process, and analyze the nexus with competition. They use a double-output formulation of the Lerner index to disentangle the market power of lending and non-traditional activities. They find important differences in the two indicators, consistently with the common narrative. The market power related to non-traditional activities is both larger in magnitude and more pro-cyclical than that estimated for traditional lending. The authors’ findings suggest that banks might engage in less traditional business lines to alleviate the competitive pressure borne on core activities.

Abstract

The term “shadow banking” refers to credit intermediation performed outside the regulated perimeter of traditional lenders. Banks, however, do play a significant role in it. The authors review the origins and characteristics of the shadow banking system, investigate how banks control various steps of the securitization process, and analyze the nexus with competition. They use a double-output formulation of the Lerner index to disentangle the market power of lending and non-traditional activities. They find important differences in the two indicators, consistently with the common narrative. The market power related to non-traditional activities is both larger in magnitude and more pro-cyclical than that estimated for traditional lending. The authors’ findings suggest that banks might engage in less traditional business lines to alleviate the competitive pressure borne on core activities.

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Additional indexing

Item Type:Book Section, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:29 September 2017
Deposited On:23 Nov 2016 13:47
Last Modified:19 Feb 2018 07:25
Publisher:Edward Elgar Publishing
ISBN:9781785363290
OA Status:Closed
Publisher DOI:https://doi.org/10.4337/9781785363306.00021
Related URLs:http://www.e-elgar.com/?___SID=U (Publisher)
Other Identification Number:merlin-id:13999

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