A new approach to measuring competition in the loan markets of the euro area JACOBA. BIKKER, MICHIEL vA NLEUvENSTEIJN,
This chapter is the first that applies a new measure of competition, the PCS indicator, to the banking industry. This approach is able to measure competition within segments of the banking market, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure loan market competition in the five largest EU countries as well as, for comparison, the UK, the US and Japan. Our findings indicate that over the 1994-2004 period the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the most competitive in the EU. The Netherlands occupied an intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive.