Interbank Market Integration, Bank Competition, and Loan Rates

Ongena, Steven; Popov, Alexander A.

doi:10.2139/ssrn.1339856

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Interbank Market Integration, Bank Competition, and Loan Rates

43 Pages Posted: 9 Feb 2009

See all articles by Steven Ongena

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Alexander A. Popov

European Central Bank (ECB)

Date Written: February 9, 2009

Abstract

We study the effect of the integration in interbank markets on the interest rates that are charged on bank loans granted to individual firms. We account for banking sector competition and the selection that arises in the loan request and approval process. We use a comprehensive data set that contains contract terms on individual loans to more than 7,000 firms across 12 European countries between 1998:01 and 2005:06. We find that interbank market integration results in substantially lower loan rates. The decrease is strongest in markets with competitive banking sectors.

Keywords: interbank markets, selection, loan rates

JEL Classification: E51, G15, G21

Suggested Citation: Suggested Citation

Ongena, Steven R. G. and Popov, Alexander A., Interbank Market Integration, Bank Competition, and Loan Rates (February 9, 2009). Available at SSRN: https://ssrn.com/abstract=1339856 or http://dx.doi.org/10.2139/ssrn.1339856