Annual EBHS Conference, 39th Annual Economic and Business History Society Conference

Font Size: 
Measuring Competition in Portuguese Commercial Banking during the Golden Age (1960-1973)
Luciano Amaral

Last modified: 2014-03-10


The institutional environment of Portuguese banking during the Golden Age years of economic growth (1950-1973) has been criticized in many instances. Direct observers of the period and historians alike have stressed two main aspects of that environment: on the one hand, it would have granted excessive protection to existing banks, allowing them to obtain high rents, a disincentive for them to compete and innovate; on the other, it would have forced banks to concentrate their activity excessively on short-term commercial paper, thus preventing them from contributing effectively to finance growth. Recently, however, the validity of this picture has been questioned by Amaral (2013). The issue is of importance: if Portuguese banks were able to extract “excess profits” on a consistent basis, it would have been difficult to explain how they financed efficiently the fast growth of the economy. The contradiction is not limited to Portugal, in fact, as rapid growth in many economies in that period occurred within a framework of heavily regulated financial systems. This is what Monnet (2012) has appropriately called the “financial paradox” of the Golden Age.

Amaral’s approach, however, is essentially descriptive. In this paper we use a formal statistical test of the Panzar-Rosse type in order to confirm or infirm his suggestions. We use a new and vast data set covering the most important items of the accounts of all Portuguese commercial banks in the years between 1960 and 1973. According to our most consistent results, the Portuguese commercial banking sector in this period was an oligopoly with a reasonable degree of competition. However, in some of the specifications tried, it was not possible to exclude the possibility of perfect competition. In all of the tests, the possibility of a perfectly collusive cartel was excluded. The traditional “rentist” picture of Portuguese commercial banks cannot, thus, be confirmed.