The Economics Of Regional Demarcation In Banking
The European Commission criticized cooperation among savings and cooperative banks for potentially anticompetitive effects. Using an industrial economics model of banks taking deposits and giving loans, the authors look at regional demarcation as one of such cooperative practices. They study two adjacent markets comprising one savings or cooperative bank that focuses on one market and one private commercial bank serving both. They acknowledge that savings and cooperative banks have atypical objective functions. They find that abolishing regional demarcation does increase total loan volume.