Portuguese banking sector: a mixed oligopoly?

In this paper we investigate whether we can find evidence of a regulatory intervention in the Portuguese banking sector. We develop and estimate using panel data a simple oligopoly model where one public bank competes in prices with several private banks. We assume that private banks maximize profits and that the public bank is instructed to maximize an objective function that depends on the profits of the public bank and on the public bank's revenues from deposits and loans, evaluated at their respective opportunity costs. Empirically we find evidence supporting the existence of a regulatory intervention in the loans market, which aimed at reducing the equilibrium interest rates paid on loans. However in the deposits markets our empirical results do not support the hypothesis of the existence of internal regulatory devices.