Anca Podpiera
This article offers empirical evidence on the evolution of competition in the banking sector and its relationship to the cost efficiency of banks in the Czech Republic between 1994 and 2005. First, we measured the level and evolution of competition and cost efficiency. Competition was measured with the Lerner index on the loan market, using quarterly data on loan prices. Then we investigated the relationship and causality between competition and efficiency using the Granger-causality test. This supported a negative causality running from competition to efficiency (the "banking specificities" hypothesis). By contrast, our results reject the "quiet life" hypothesis for the Czech banking sector, according to which competition should positively influence efficiency.
Issued: June 2008
Download: Thematic article in the Financial Stability Report 2007 (pdf, 160 kB)