MARKET-STRUCTURE AND PERFORMANCE IN SPANISH BANKING

Two competing hypotheses with regard to market structure and performance are the traditional structure-conduct-performance (SCP) paradigm and the efficiency hypothesis. In this paper, results are presented for tests of both hypotheses with respect to the Spanish banking industry using pooled and annual data for the period 1986-88. The results generally support the traditional SCP paradigm as an explanation for the market behaviour of Spanish banks and this suggests that further concentration in the Spanish banking market, currently being encouraged by the government and the Bank of Spain, is likely to unambiguously decrease the level of competition in the system and cannot be justified on efficiency grounds.