23.04.2019; Kolloquium
Colloquium: "May the Force be With You: Profitability Sclerosis and Consolidation Barriers in Banking"
Abstract:
We test whether consolidation barriers cause poor profitability in banking. We exploit an exogenous shock to industry dynamics of selected regional banks in Germany: the unification of counties. County mergers legally force government-owned, but not privately owned banks to merge.
Relative to voluntary bank consolidation, forced mergers causally enhance bank profitability and efficiency at the expense of riskier financial profiles. Regarding real effects, firms exposed to forced bank mergers borrow more at lower cost, increase investment, and exhibit higher employment. Thus, reduced consolidation barriers in banking seem to unleash the economic potential of both banks and firms.