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

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

December 11, 2020

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Brandon Tan, Deniz O Igan, Maria Soledad Martinez Peria, Nicola Pierri, and Andrea F Presbitero. Government Intervention and Bank Market Power: Lessons from the Global Financial Crisis for the COVID-19 Crisis, (USA: International Monetary Fund, 2020) accessed December 21, 2024

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.

Subject: Bank resolution, Financial crises, Financial institutions, Global financial crisis of 2008-2009, Loans, Nonperforming loans, Stocks

Keywords: A. measuring market power, Bank market power, Bank resolution, Banks, Global, Global financial crisis of 2008-2009, Government intervention, Intervened bank, Intervention characteristic, Lerner index, Loans, Market power, Nonperforming loans, TARP-recipient bank, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/275
Stock No:

WPIEA2020275
ISBN:

9781513563886
ISSN:

1018-5941

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