Competitive Conditions in the Swedish Banking System

Abstract

The Swedish banking system is characterized by high asset concentration where the share of the four largest banks accounts for about 79 percent of the total assets of the whole system. Since there has been a general perception that high industry concentration impairs competitiveness, it is worthwhile to examine the competitive nature of the system. Besides, the recent global financial crisis and actions taken in the aftermath as a response to the crisis could have an impact on competition. This paper presents empirical assessment of the competitive conditions in the banking system of Sweden over the period 2003-2010. I apply the Panzar-Rosse and the Boone indicator methods on bank-level data. The results suggest that banks in Sweden generate their revenues under a monopolistically competitive environment. Furthermore, the hypothesis for perfect competition among commercial banks is not rejected, suggesting that commercial banks operate in a more competitive environment than savings banks. Finally, the Boone indicator suggests a slight decline in the degree of competition in the banking system after the recent global financial crisis.