Competition and Scope in Banking: The Case of Corporate Credit Cards

Banks are becoming “one-stop shops" serving multiple customer and product segments. This expansion in bank scope can generate complementarities across products and customers (e.g., deposits and loans), potentially leading to lower marginal costs and prices. In this paper we quantify cost synergies for banks using new data from a major commercial credit bureau for firm credit in the United States. Moreover, we consider how banks with a wider scope may have incentives to steer some firms into specific products or loan sizes. We develop and estimate a supply and demand equilibrium model of firm credit. The model allows for cost synergies and steering by banks, while in competition with non-banks. We find that banks’ incentives generate product and quantity distortions for firms, while non-banks that are more specialized in their product offerings do not show such distortionary behavior. We use our estimated model to evaluate the counterfactual equilibrium effects of restricting bank scope and regulating firm credit.