2014 Volume 10 Pages 224-241
This study focusing on Hokkaido municipalities attempts to verify two hypotheses as follows: 1) regional banking oligopoly raises interest rate spreads between local governments’ borrowings from regional financial institutions and the public loan programs, 2) local governments that borrow much money from the public loan programs have an advantage in borrowings from regional banks since the programs function as remedies for the oligopolistic problem. Empirical results support these two hypotheses. First, the spreads tend to narrow with an increasing number of regional banks to participate in the bidding or estimate comparisons. Second, local governments are able to reduce the spreads slightly by financing from banks other than the designated financial institution, even though money loan contracts are made in a non-competitive manner. And finally, it is confirmed that the spreads are low in local governments that are allocated more the program funds. Therefore, the public loan programs may reduce the negative effects of oligopoly by regional financial institutions.
