Seminar: Measuring bank competition: A net present value approach

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Bastiaan Overvest (ACM)

Discussant: Sander van Veldhuizen (CPB)

Language: English

Registration:  Please register by sending an email to seminars@cpb.nl.

Abstract subject
How competitive is the Dutch banking market? A number of basic facts suggest that the answer to this question is “not very much”. To mention a few: the market is dominated by three big incumbents, the concentration index is relatively high, several banks received state aid in the wake of the 2008 financial crisis and the average long-term mortgage rate is 2%-points higher than in Germany. One could maintain that these indications are inconclusive regarding the degree of competition, as for instance the difference with the German mortgage rate could be due to risks particular to the Dutch real estate market. Conjectural variations methods could help answer the above question as they aim to directly estimate the degree of competition. Existing conjectural variations methods make no distinction between financial products and non-financial products. Yet, financial products such as mortgages are quite different from non-financial products – an interest rate is not “the” price. Building on the Bresnahan-Lau model, I develop a method that explicitly takes characteristics of mortgages into account. The model is estimated for the Dutch mortgage market for 2003 – 2013. The preliminary results indicate that the degree of competition has significantly lowered since the financial crisis.

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