Market structure and credit procyclicality: Lessons from loan markets in the European Union banking sectors |
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| Institution: | 1. Athens University of Economics and Business, Greece;2. SGH Warsaw School of Economics, Al. Niepodleg?o?ci 162, 02-554 Warsaw, Poland;3. Kozminski University, Warsaw, Poland;4. IPAG Business School, 184 Boulevard Saint-Germain, FR-75006, Paris, France;5. Department of Business Administration, Athens University of Economics and Business, 76 Patission Street, GR-10434, Athens, Greece;1. Aletheia University, Taiwan;2. National Taichung University of Science and Technology, Taiwan;1. IMUVa, Universidad de Valladolid, Spain;2. Universidad de Murcia, Spain;1. University of Milano, Bicocca and CefES, Italy;2. University of Pavia, Griffith University and CefES, Italy |
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| Abstract: | The aim of this paper is to investigate whether the market structure has an impact on procyclicality in the European Union bank loan markets. The cyclical responses of three types of bank loans (residential mortgage loans, consumer loans, and corporate loans) are quantified separately using the interacted panel vector autoregression model at the country level and the single-equation panel regression model at the bank level. Using a sample of 26 European Union countries, we find that the procyclical responses of residential mortgage loans and consumer loans are significantly stronger and prolonged when the banking sector is more concentrated or dominated by foreign banks. However, we find that there are nonlinear relationships between the market structure and credit procyclicality based on bank-level data. We also find some heterogeneities between advanced and transitioning European Union banking sectors. Finally, our findings confirm the leading role of residential mortgages in intensifying credit fluctuations. |
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| Keywords: | Credit procyclicality European Union banking sectors Concentration Competition Foreign ownership Macroprudential policy E32 F36 G20 G34 L1 |
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