Merger Analysis in the Banking Industry: the Mortgage Loans and the Short Term Corporate Credit Markets

This article, assesses the unilateral and coordinated effects on the Portuguese mortgage loans and short term corporate credit markets of the merger between the banks BCP and BPI. We use a rich cross-section of micro level data and a discrete choice model to estimate the price elasticities of demand and the marginal costs of mortgage loans and short term corporate credit. Based on these estimates, we simulate the impact of the merger on prices and welfare. Regarding unilateral effects, our results indicate that the merger would lead to an average increase in the prices of mortgage loans of 3.1%, and to an average increase in the spread of 9.9%. Additionally, the merger would lead to an average increase in the prices of short term corporate credit of 7.4%. Regarding coordinated effects, our results indicate that the merger would significantly increase the profitability of collusion between the three largest banks. We also simulate the effects of one of the remedies proposed by BCP: selling-off 10 % of the branches of BPI.