XXVI Edition

14-15-16 December 2017"

New evidence on the nexus between local banking competition and loan pricing

Kuehne Claudia, Frankfurt School of Finance and Management
Cycon Lisa, Frankfurt School of Finance & Management

We investigate how local banking competition affects the loan pricing behavior of a large and multiregional operating bank. Given the federalist setup of the local German banking market, the local competitive environment is arguably exogenous to the loan pricing of the multiregional bank we observe. Based on unique data of loans granted to more than 11,500 German firms, we find that a larger degree of local bank competition results in a lower interest margin on loans. This result does not change with the relationship intensity between individual firms and the bank.

Area: Banking

Keywords: Financial intermediation, banking competition, loan pricing, relationship banking

Paper file

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