Bank Market Power and Access to Credit: Bank-Firm Level Evidence From the Euro Area

We test how bank market power affects firms’ access to credit using a bank-firm database on five European countries. Results indicate that firms served by high-market power banks obtain less credit, rely more on trade credit and face higher funding costs relative to other firms. Furthermore, the effect of bank market power is nonlinear and heterogeneous across firms. First, the effect of market power is larger for poorly collateralized firms. Second, market power is associated to worse credit conditions only beyond considerable levels of concentration. Overall, our findings suggest that concentration worsens corporate credit conditions, especially for informationally opaque firms.