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Bank of Finland Research Discussion Papers, Bank of Finland

No 17/2004:
The efficiency implications of financial conglomeration

Ville Mälkönen ()

Abstract: This paper studies the competitive and efficiency implications of financial conglomeration driven by cost-efficiency gains in monitoring credit and insurance customers. The analysis shows that conglomeration is conducive to tougher competition in the credit market and increases profit in insurance. The aggregate profit in the financial sector does not increase, because the conglomerates pass the cost-efficiency gains on to the borrowers in full. More competitive market for financial services also reduces the aggregate risk in the financial markets, indicating that capital requirements in both sectors should be lower in the presence of financial conglomerates.

Keywords: financial conglomerates; banking; insurance; capital regulation; (follow links to similar papers)

JEL-Codes: G21; G22; G38; L40; (follow links to similar papers)

34 pages, July 18, 2004

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This paper is forthcoming as:
Mälkönen, Ville, 'Financial conglomerates and monitoring incentives', Journal of Financial Stability.



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