bank mergers in the financial crisis – a competition
TRANSCRIPT
BANK MERGERS IN THE FINANCIAL CRISIS – A COMPETITION POLICY
PERSPECTIVE
Michael Hellwig ZEW – Leibniz Centre for European Economic Research
Falk Laser Goethe University Graduate School of Economics, Finance and Management, Technische Universität Darmstadt
OVERVIEW
2
Focus on the importance of competition policy in times of unstable financial markets
Investigate the competition effects of the merger between ABN AMRO and Fortis Bank Nederland in 2010
Estimate a structural model to analyze demand substitution patterns and pricing decisions
Simulate price effects of a merger between two Dutch banks with ex-ante info
Merger simulation … based on disaggregated data (like Goldberg 1995, in contrast to literature following
Berry/Levinsohn/Pakes 1995 using aggregated (market share) data (e.g. Ivaldi/Verboven 2005))
… in the banking sector (first to our knowledge)
SETTING
3
Merger between ABN AMRO and Fortis Bank Nederland in 2010 Interesting case: Largest bank takeover (71.1 billion euro in October 2007) Affected by financial crisis (Fortis was nationalized in October 2008 putting
the merger on hold) Involving state aid (Dutch state completed the merger in July 2010)
EC cleared the merger (2007) and approved state aid (2011) EC only had concerns regarding commercial banking; retail banking was not
considered to be affected by the merger (ABN AMRO 3rd, Fortis 4th)
Motivation to investigate price effects of the merger in retail banking sector Specifically: market for savings accounts
When the Dutch state made its state-aid decision, was it a good decision to continue the merger instead of keeping the banks separated?
APPROACH I
4
Merger simulation based on structural model Demand: Random utility model: discrete choice of a differentiated good (savings
account) Random-coefficients mixed logit model (flexible substitution patterns and
no IIA) Disaggregated approach: account for characteristics of products and
consumers Aggregation to retrieve elasticities (using population weights)
Supply: Bertrand Nash competition in a multiproduct oligopoly Choice variable: deposit rate ( negative effect on profits)
APPROACH II
5
Simulation: Change in ownership matrix Calibrate model with pre-merger data and simulate both scenarios
(merger/no-merger) for the actual merger year (ex-ante approach)
Calibration (2007-2009): 1. Demand: Estimate
price elasticities 2. Supply: Assume type
of competition
Simulation (2010): 1. Simulate interest rates
for merger case 2. Simulate interest rates
for no-merger case
Results: Obtain simulated changes in the interest rates induced by the merger
DATA
6
DNB Household Survey Dutch panel survey containing detailed information on asset and debt holding of
households and their characteristics Representative, about 2000 households interviewed each year Savings amount, income, age, having legacy accounts
Deposits rates for savings accounts from price comparison website Including information on type of account (internet-only or not) and other
constraints (minimum deposit, minimum holding time etc.)
Bank-related information from annual reports Financial figures, number of branches, other cost shifters, Euribor
Years: 2006-2014, but main focus on 2007-2010
CONCLUSION
14
We use a structural model to simulate merger induced changes in the interest rates in the Dutch retail banking market induced by the merger between ABN AMRO and Fortis Bank NL
We predict significant merger-induced decreases in the interest rates for merging and non-merging banks ABN AMRO: -5% Fortis Bank NL: -3% Customer welfare loss: 69 mio EUR
Our results highlight taking into account the additional social costs due to lower competition next to the direct (fiscal) costs of stabilizing distressed financial markets
Michael Hellwig Phone: +49 621 1235 233 E-mail: [email protected] ZEW – Leibniz Centre for European Economic Research L7, 1 68161 Mannheim www.zew.eu