Research Discussion Papers, Bank of Finland
No 18/1998:
Delivery Networks and Pricing Behaviour in Banking: An Empirical Investigation Using Finnish Data
Jukka Vesala ()
Abstract: The paper presents a method of measuring bank
differentiation in terms of branch and ATM networks and uses the measures
thus obtained to explain the pricing of deposits as well as corporate and
household loans. Structural system models of demand and pricing equations
are also estimated to separate network differentiation effects from
collusion in loan and deposit rates. Pricing power due to network
differentiation is found to exist mostly in household lending, while the
benefits of differentiation are found to decrease trend-wise in all lending
and deposit-taking activities. This result is in line with predictions
concerning the technological transformation of services' delivery in
banking. Differentiation is found to be the primary source of pricing power
in lending, while collusion dominates in deposit-taking. Thus, European
liberalization has greater potential to increase the contestability of the
deposit market. Identified impacts of technological change imply more
efficient pass-through of money market rate changes to loan and deposit
rates in the future.
Keywords: banking; delivery networks; differentiation; collusion; (follow links to similar papers)
51 pages, August 19, 1998
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