Bank Market Power and Monetary Policy Transmission

44 Pages Posted: 25 Oct 2016

See all articles by Sophocles N. Brissimis

Sophocles N. Brissimis

Bank of Greece

Maria Iosifidi

University of Surrey - Surrey Business School

Manthos D. Delis

Audencia Business School

Date Written: December 2014

Abstract

This paper examines empirically the role of bank market power as an internal factor influencing banks’ reaction in terms of lending and risk taking to monetary policy impulses. The analysis is carried out for the U.S. and euro-area banking sectors over the period 1997–2010. Market power is estimated at the bank-year level, using a method that allows the efficient estimation of marginal cost of banks also at the bank-year level. The findings show that banks with even moderate levels of market power are able to buffer the negative impact of a monetary policy change on bank loans and credit risk. This effect is somewhat more pronounced in the euro area compared with the United States. However, following the sub-prime mortgage crisis of 2007, the level of market power needed to shield bank loans and credit risk from the impact of a change in monetary policy increased substantially. This is clear evidence that the financial crisis reinforced the mechanisms of the bank lending and the risk-taking channels.

Suggested Citation

Brissimis, Sophocles N. and Iosifidi, Maria and Delis, Manthos D., Bank Market Power and Monetary Policy Transmission (December 2014). Available at SSRN: https://ssrn.com/abstract=2858468 or http://dx.doi.org/10.2139/ssrn.2858468

Sophocles N. Brissimis

Bank of Greece ( email )

21 E. Venizelos Avenue
GR-10250 Athens
Greece

Maria Iosifidi

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 8DN
United Kingdom

Manthos D. Delis (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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