ABSTRACT
Over the last two decades, policymakers have progressively liberalized financial industries and markets, promoting foreign competition and deregulating interest rates (Turk Ariss 2010). Handling competition is crucial for policymakers since it plays a key role in social welfare as it may push down prices (interest rate) for customers and enterprises and alleviate moral hazard and adverse selection problems (Boyd and De Nicolò 2005). Competition is also important in monetary policy since in a competitive market, changes in the policy rates of the European Central Bank (ECB) are passed on more quickly to the interest rates that banks offer their customers (ECB 2007).
