May the force be with you: Exit barriers, governance shocks, and profitability sclerosis in banking

Arbeitspapier

We test whether limited market discipline imposes exit barriers and poor profitability in banking. We exploit an exogenous shock to the governance of governmen-owned banks: the unification of counties. County mergers lead to enforced governmen-owned bank mergers. We compare forced to voluntary bank exits and show that the former cause better bank profitability and efficiency at the expense of riskier financial profiles. Regarding real effects, firms exposed to forced bank mergers borrow more at lower cost, increase investment, and exhibit higher employment. Thus, reduced exit frictions in banking seem to unleash the economic potential of both banks and firms.

Object Details

• ISBN: 978-3-95729-527-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 49/2018

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Other ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: political frictions ; governance ; excess capacity ; banking ; market exit

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koetter, Michael ; Müller, Carola ; Noth, Felix ; Fritz, Benedikt
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/191249
• Last update: 10.03.2025, 11:42 AM CET