New evidence on assessing the level of competition in the European Union banking sector: A panel data approach

• This paper examines the level of concentration in the EU banking sector.
• H-statistic estimates denote the presence of monopolistic competition.
• Competition in the Eurozone experienced a decline after the adoption of euro.
• The state aid to EU banks during the crisis did not affect the market structure.
• Competition policy may increase financial stability and lift the barriers to entry.

The goal of this paper is to empirically assess the level of banking competition in the European Union (EU) across three economic blocks (i.e. EU-27, EMU-17 and the remaining EU countries). Furthermore, the paper assesses the impact of the on-going financial crisis (2008–2011) on the competition pattern of the banking sector in the European Monetary Union (EMU) as a whole, where little attention has been paid by the relevant literature. The analysis employs the Panzar and Rosse ((1987). Journal of Industrial Economics, 35, 443) methodology and draws upon a panel dataset of EU banks, spanning the period 1996–2011. The empirical findings are robust, providing updated evidence in favour of a monopolistic competition pattern across all EU economic blocks examined. The level of competition in the EMU countries triggered by bank consolidations seems to have undergone a small, albeit a significant decline, after the adoption of the euro currency and the on-going financial crisis.