8. Banks & Banks' Mergers Flashcards
Why are mergers important?
- Synergies and efficiency effects and they may also have more market-power effect
Three types of mergers:
- Horizontal: companies in the same industry
- Vertical: companies in different industries but along the same value chain
- Conglomerate: companies in different industries
Paper investigates the effect of Italian bank mergers on deposit interest rates - Focarelli and Panetta
Results:
- Mergers cause an increase in market power in the short run (2 years after the merger)
- Mergers cause an increase in efficiency in the long run (3 years after the merger)
Paper investigates the effect of Italian bank mergers on deposit interest rates - Focarelli and Panetta
Mergers cause an increase in market power in the short run (2 years after the merger)
- Leads to a decrease of the deposit interest rates
- Increase in market power is stronger for small deposits compared to large ones
- Increase in market power is stronger in markets with high concentration
- Increase in market power is stronger for mergers that have a large impact on local markets
Paper investigates the effect of Italian bank mergers on deposit interest rates - Focarelli and Panetta
Mergers cause an increase in efficiency in the long run (3 years after the merger)
- Leads to an increase of the deposit interest rates
- Increase in efficiency is stronger for successful mergers compared to unsuccessful mergers
Paper investigates the effect of Italian bank mergers on deposit interest rates - Focarelli and Panetta
What are the efficiency gains?
- Cost saving
- Enter new markets
- Improve management performances
Paper investigates the effect of Italian bank mergers on deposit interest rates - Focarelli and Panetta
What is the market power effect?
- Local competition (banks closer to households have more market power)
- Entry barriers (banks face high costs to open a branch)
Paper investigates the effect of Italian bank mergers on deposit interest rates - Focarelli and Panetta
An increase in efficiency is stronger for ..
Successful mergers compared to unsuccessful mergers
Paper investigates the effect of Italian bank mergers on deposit interest rates - Focarelli and Panetta
Bank mergers lead to an .. in short run (decreases deposit interest rates in the short run)
and lead to an .. in the long run (increases deposit interest rates in the long run)
These effects are stronger when ..
- Increase in market power
- Increase in the efficiency
- The merger is successful
- High concentrated markets
- For small deposits.
Paper investigates whether bank mergers lead to a greater ability to screen borrowers - Panetta et al.
Found that when the risk score increases..
The interest rate increases even more when ..
Merged banks are better ..
- The interest rate goes up
- There was a merger
- In screening borrowers
Investigated whether it matters
if the firms had already a long
relationship with the bank - Panetta et al.
Firms with a longer relationship with
the bank, have .. in the
interest rate than firms with a short relationship with the bank.
Reason?
- A smaller increase
- When you already have a long relationship with the bank, the bank has already a lot of information about you
Investigated whether it matters if the bank supplies a large amount of a firm’s credit (main) or supplies a small amount of the firm’s credit (fringe)
Found that the increase in the interest rate is .. for main firm’s (>15% of total loans) than for fringe firm’s (<15% of total loans).
Reason?
- Smaller
- When the bank is a main lender, the bank has more information about the firm
Concluding:
after a merger, risky borrowers experience ..,
while no-risky borrowers enjoy lower interest rates. These effects are caused by ..,
rather than from explicit information sharing on individual customers among the merging parties.
- An increase in the interest rate
- Improvements in information processing resulting from the merger
