The Impacts of the Establishment of the Financial Holding Company on the Competition of Domestic Banking Industry

Transcription

1 * The Impacts of the Establishment of the Financial Holding Company on the Competition of Domestic Banking Industry Yu-Feng Lu Department of Applied Economics National Chung Hsing University Biing-Wen Huang Department of Applied Economics National Chung Hsing University Chien-Chiang Lee Department of Applied Economics National Chung Hsing University * ** *** Tel: b whuang@nchu.edu.tw **** ccl@nchu.edu.tw

2 Panzar-Rosse (panel data) H Pearson Panzar-Rosse JEL C22, G21, G28, E44 Abstract This study is to analyze the impacts of the establishment of Financial Holding Company (i.e. FHC) on the competition of domestic banking industry. In addition to measure year-to-year's changes on competition of domestic banking industry, we will also compare the competition extent of domestic banking industry before and after the establishment of FHC. Furthermore, this study would explore the interrelationship among competition, concentration index, numbers of banks branch offices and interest rate spread. Based on these analyses, those can be used to observe the changes of domestic banking industry before/after the establishment of FHC, examine whether the competition extent decrease or not, and discuss whether the competition extent will be reflected on the interest rate spread or not. This study applies the Panzar-Rosse model. In empirical research, we firstly use panel data method, which finds that domestic banking industry from 1996 to 2005 as monopolistic competition, while 4 years before/after the establishment of FHC, i.e and , as well as 5 years before/after the establishment, i.e and , are also monopolistic competition. Moreover, the degree of competition after the establishment of FHC is lower, which means the condition of over-banking has

3 71 improved. Secondly, we use Ordinary Least Square methodology to examine competitive environment year to year, which finds that (1) in 1996, 1998, 1999, and 2000, the testing results cannot reject the null hypothesis of the market in perfect competition; (2) in 1997, 2001, and 2004, the market is in monopolistic competition; (3) in 2002, 2003, and 2005, the testing results cannot reject the null hypothesis of the market in monopolistic competition or oligopoly with fully collusion. The changes of market competition year to year demonstrate that H statistic, symbolizing the degree of competition, has declined. Accordingly it shows the competition has mitigated. This study then uses Pearson Analysis to assess correlations. The results show positive relationship between concentration index and competition, meaning that a diminishing market concentration is not necessary being able to foster market competition. The five major large-sized banks still dominate the market prices. Meanwhile majority small-sized banks do not have substantial influences. Besides, the study finds negative relationship between numbers of banks branch offices and competition, indicating the increasing numbers of banks branch offices would not enhance competition condition. Finally, the empirical result reveals a negative relationship between interest rate spread and competition, implying banks could take strategies of expanding interest rate spread due to the reduce of the degree of competition. Keywords: domestic banking industry, degree of competition, concentration index, interest rate spread, Panzar-Rosse model, Pearson Analysis of Correlation. JEL Classification: C22, G21, G28, E (market structure) (market competition) ( 2001) 2 (1999)

4 (2004) (1) (2) (3) (1) (2) (3) (2002) (2002) 2 5 (concentration) (2000) (2002) (2003) (2002) 4 (Financial Holding Company FHC) 2000 (Gramm-Leach-Bliley Act) (1) % (2) 2005 (3) (4) 2006

5

6 (2002) (2004) 2003 (2005) (2006) (2007)

7 Pearson Ho and Saunders (1981) Pearson 6 Claessens and Laeven

8 (competitive market structure) (market power) 7 Bikker and Haaf (2002) (structure) (conduct) (performance) S-C-P S-C-P k k-firm concentration ratio CR k 8 HHI (Herfindahl-Hirschman index) 9 (efficient structure hypothesis) (2006) (size distribution) CR k HHI Bikker and Haaf (2002) CR k HHI 7 (1987) 8 i CR k 9 N MS i i 10,000 HHI

9 77 Bresnahan Panzar- Rosse Bresnahan 10 Panzar - Rosse P-R Panzar and Rosse (1987) (reduced - form revenue equation) H 11 H 12 (1) H 0 (2) H 1 (3) 0 H 1 Shaffer (2004) P-R (1) (2) (3) Mamatzakis et al. (2005) P-R P-R H 0 P-R 10 Bresnahan Bresnahan 1982 Lau H H= R i i W i i K m

10 Panzar - Rosse H Molyneux et al. (1994) Bikker and Haaf (2002) 4 P-R Shaffer (1982) Molyneux et al. ( ) Guorong et al. (2004) De Bandt and Davis (2000) Bikker and Haaf (2002) Claessens and Laeven (2004) (2003) (2005) (2001) (2002) (DEA) Panzar - Rosse (2006) (2007) (2000) P-R

11 79 14 P-R 5 5 P-R 1. P-R 2. P-R 14 (2006) Dummy Model

12 P-R 3. P-R (3) (4) 2.2 Shaffer (1982) Molyneux et. al (1994) De Bandt and Davis (2000) Bikker and Haaf (2002) (2006) (2007) (panel data) 15 Guorong et al. (2004) (1) (2) 15 (cross section) (time series) (panel data)

13 81 Bikker and Haaf (2002) Claessens and Laeven (2004) Guorong et al. (2004) (2006) (2007) TRTA 16 PF PL PK (PF) (PL) (PK) De Bandt and Davis (2000) Claessens and Laeven (2004) (PK) ORTA TRTA Bikker and Haaf (2002) (2006) (2007) (LNTA) (NPL) LNTA NPL (BDEP) 16 Molyneux et al. (1996) De Bandt and Davis (2000)

14 (TA) D Shaffer (1982) (ROA)

15 83 ROA (2 1) H E 0 H E Molyneux et al. (1994) Molyneux et al. (1996) Bikker and Haaf (2002) (2006) (2007) (ROA) 18 (2006) (2007) outlier method

16

17 * TRTA ROA PF PL PK 3. PL % 4. (Ordinary Least Square OLS) Pearson (2 3) (random effect model) (fixed effect model) 19 Wald-test 19

18 (1) ROA 20% (2-3) H (2) (3) *, ** 10% 5% (4) H E 0 χ 2 F ** 5% H E 0 H E 0

19 87 H E H E H E H E HE H E H E Waldtest H E H E ROA % ROA H E 0 (PF) (PK) (ROA) (TRTA) (2 1) PF PL PK

20 (1) ROA 20% (2-3) H (2) (3) *, ** 10% 5% (4) H E 0 χ 2 ** 5% H E 0 H E 0 H

21 89 10 (1) (2) *, ** 10% 5% (3) H 0 1 χ 2 F ** 5% H 0 H 1 2.5% H 0 H 1

22 PF PL PK H PF PL PK H (ORTA) (TRTA) (LNTA) (NPL) (BDEP) (NPL) (BDEP) 6% 12% (TA)

23 (D) (TRTA) (2 1) (PF) (PL) (PK) H Wald-test H H H 0 H H H 0 H H H 1 0 H 1 H 0 H H H

24 (1) (2) *, ** 10% 5% (3) H 0 1 χ 2 ** 5% H 0 H 1 2.5% H 0 H 1

25 (ORTA) (TRTA) (LNTA) (NPL) , % (BIS ratio) 8% (BDEP)

26 (1) (2)CR 3 CR 4 CR % 8.63% (TA)

27 95 13 (1)CR 3 CR 4 CR 5 (2)HHI Herfindahl-Hirschman index 3.4 Pearson (The Banker) CR 3 CR 4 CR 5 HHI CR K HHI P- R 21 (2005)

28 Shepherd (1985) (1998) Shepherd (1985) 14 CR 4 40% , ,239 (over-banking) 15 Pearson CR 3 CR 4 CR 5 HHI % 22 (follower) CR 5 23 Bikker and Haaf (2002)

29 97 15 Pearson (1)*** 1% (2)CR 3 CR 4 CR 5 (3)HHI Herfindahl-Hirschman index (4)ln BR 3.5 (interest rate spread IRS) McShane and Sharpe (1985) (IRS) (3 1) (3 1) % 1.88% 2.18% 2.35% 2.42% 2.74% 3.17% 2.77% 2.68% 2.78%

30 % *** 1 Ho and Saunders (1981) Pearson H (IRS) 17 H

31 99 (IRS) Pearson 90% (OLS) H P-R H Wald-test H H Wald-test 0 1 Wald-test H 0 1 (1) H (2) H (3) H H

32 CR 3 CR 4 CR 5 HHI Pearson H CR 3 CR 4 CR 5 HHI H 90% 3. Pearson McShane and Sharpe (1985) % Ho and Saunders(1981) H S-C-P

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