9th Symposium on
Finance, Banking, and Insurance
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Stefan Arping |
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HEC, Université de
Lausanne, Suisse |
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How does industrial ownership by banks affect product-market structure? Conventional wisdom suggests that bank industrial ownership forecloses entry by new firms which would compete with bank-affiliated incumbents. This paper sheds doubts on this claim. Within a framework where the financing relationship between an entrant and an investor is subject to a moral hazard problem, I show that bank industrial ownership may even facilitate financing of entry. Moreover, industrial ownership by banks has pro-competitive effects as long as there is a regulatory limit to bank equity stakes in industrial companies. Thus, I provide an explanation for regulatory policies which allow banks to hold some, but not too much industrial equity. I also provide a new rationalization for limits to bank risk-taking which is not based on systemic risk, but antitrust concerns.
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| Key words: Industrial Ownership by banks, investment banking, venture capital, regulation of bank equity stakes. | |||