How to Disturb the Dominance of the ‘Big 4’ UK Commercial Banks: A Study of Competition through Consolidation
Sharma, Rajan (2015) How to Disturb the Dominance of the ‘Big 4’ UK Commercial Banks: A Study of Competition through Consolidation. [Dissertation (University of Nottingham only)]
This dissertation, through the estimation of a translog cost function, estimates the efficiency levels of UK commercial banks between 2005 and 2014. This is used to hypothetically merge medium sized banks in order to create real competition for the ‘Big 4’ commercial banks. Both scale inefficiencies and X-inefficiencies contribute to the cost inefficiencies found within the current UK banking sector. The largest commercial banks, with total assets between £900 billion and £1.3 trillion, are found to be operating at the minimum efficient scale. Scale inefficiencies found within the banking sector are exclusively found in small banks with total assets less than £400 million. X-efficiencies were found to increase significantly in 2009 as a response to the global financial crisis. However, these levels have started to deteriorate again. The hypothetical environments created showed increased competition to the largest commercial banks through the consolidation of medium sized banks improve X-efficiency by 0.52% - 0.70%. However, scale efficiency can be increased or decreased depending on the size of the new bank. The market concentration test shows the hypothetical environments increase the market power in the banking sector.
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