Investigating the Market Power, Efficiency and Welfare Performance of Banks in Iran

Banks are the most important institutions of the financial market of a country and any deviation in the role of banks in financing production activities will have harmful effects on economic growth. In line with the performance of the Iranian banking system, the main goal of this article is to analyze the welfare performance (decrease in consumer welfare surplus) of lending services in Iran's banking industry with an emphasis on market power and efficiency. To do this, data envelopment analysis (DEA) and two-stage least squares (2SLS) were used for a panel including 15 private and public banks during the period 2006-2017. The results of the research show the positive and significant effect of efficiency, market power and the amount of investment and the negative and significant effect of the development of the banking sector on the welfare performance of banks. In addition, the results show the lack of significant effect of liquidity risk on the welfare performance of the country's banks; Therefore, it is suggested that governments and bank supervisors monitor banks' capital ratios, because banks may compensate for low capital by losing more consumer welfare.