Testing for Banking Competition in Germany

Evidence from Savings Banks

Abstract

In this paper we adopt the Panzar-Rosse approach to assess the competitive conditions for German banks in the years 1993 - 2002. Using disaggregated annual data from more than 400 savings banks (Sparkassen) the empirical results indicate monopolistic competition, the cases of monopoly and perfect competition are strongly rejected. It appears that by lending to small and mid-size enterprises as well as to private customers, the savings banks have found a niche wherein competitive pressure is rather modest. Small banks seem to enjoy even more market power. Furthermore, we find no significant evidence for a better performance of larger banks in our sample.