By Nikodem Szumilo (London School of Economics & Political Science)
The paper examines how changes in banking competition impact how financial institutions allocate resources in the economy. I focus on the influence on mortgage markets and house prices. I use the divestment of the TSB Bank from the Lloyds Banking Group forced by the European Commission in 2013. The results provide evidence that when faced with more competition, banks provide more risky loans. In addition, an entry of a new bank has a strong influence on the local real estate market and the impact occurs through established banks increasing mortgage lending in areas where the new bank is located.
