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Professor Koetter publishes expert opinion for autumn report by Council of Economic Experts
The study shows that since 1993, a subset of major banks in particular recorded the largest increase in market share. At the same time, however, empirical analysis shows that economic margins steadily shrank until the outbreak of the financial crisis in 2007. Thus market share as such is only of limited value in assessing the intensity of competition within the German banking industry. Since 2008, however, it has become clear that it represents an increasingly useful indicator for measuring banks' market power. The impact of regional banks' market power on real economic growth over the entire period under review since 1993 is only mildly negative. But in the case of the subset of significantly larger banking operations, it is clear that the banks' increasing market power has had a significant negative impact on real economic growth, especially after the bank bailouts at the start of the crisis. One reason for this is the (mis)allocation of factors of production to businesses characterized by below-average productivity - something more likely to arise when banks enjoy greater market power.
Interested readers may download the expert opinion from Professor Koetter's website or find it attached as pdf-document.
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