certificates of deposits, total deposits. The certificates of deposit rate, the only one with an agreed maturity
among those studied, is generally the highest; the savings accounts normally have the lowest rates. All the
rates were raised during the summer of 1992 and the first half of 1995, because of the restrictive monetary
policy adopted in those years to counter the foreign exchange crises that occurred.
The analysis considers the years 1990-99; some additional regressions focus on the period 1990-96.
Between 1990 and 1996, current accounts were equal on average to 50 per cent of total deposits (Table
1); deposits redeemable at notice decreased from 24 to 12 per cent; certificates of deposit increased from
24 to 35 per cent. In contrast, the years 1997-99 saw a strong increase in the share of current accounts
and a contraction in that of certificates of deposit, after the changes in the fiscal treatment of CDs in June
1996.9 At the end of 1999, current accounts rose to 76 per cent of total deposits, while CDs fell to 12 per
cent.
Independent and dependent variables are computed with reference to the Italian provinces. The
discussion on the definition of the relevant banking market is cumbersome. The choice of the province is
motivated by the large availability of data for this geographic area; it is more difficult to collect data on
banks on a municipal basis. Moreover, the province is considered the relevant market in deposits for
antitrust banking activity in Italy.
The first variable that we use to measure concentration is the Herfindahl index for deposits. Another
variable we use is the concentration ratio for the first three banks in the province (R3, the sum of their
market shares). The concentration of banking markets decreased considerably in the nineties. As other
indicators of competition and diffusion of financial services we use the number of banks and branches in
each province.10
Different control variables are used in the literature to check for the effect of concentration on interest
rates. In this paper we use per capita income in the provinces, which is an indicator of the degree of
economic development11 and the growth rate of deposits in each province, which may influence the return
offered on deposits.12
9 See Banca d’Italia, (1996).
10 Neuberger and Zimmerman (1990), for example, use as regressors the number of banks, together with the
concentration ratio R3.
11 Radecki (1998), Berger and Hannan (1989a and 1989b) and (1991), Moore (1998) use the per capita GDP
as variable influencing deposits’ interest rates.
12 Neuberger and Zimmerman (1990), Radecki (1998), Moore (1998) utilize this variable as regressor.