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Banking market conditions and deposit interest rates

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  • Rosen, Richard J.

Abstract

This paper addresses the impact market conditions on bank deposit interest rates. Examining data for 1988-2000, we find that rates are affected by market size structure (defined as the distribution of market shares of banks of different sizes whether or not the market share is achieved entirely in that local market). This is in addition to the effects of market concentration noted in earlier work. We also find large differences between urban and rural markets. In rural areas, changes in market concentration have no effect on deposit rates. These findings have implications for antitrust policy in banking.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 31 (2007)
Issue (Month): 12 (December)
Pages: 3862-3884

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Handle: RePEc:eee:jbfina:v:31:y:2007:i:12:p:3862-3884

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References

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  1. Andew Cohen & Michael Mazzeo, 2004. "Market structure and competition among retail depository institutions," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-04, Board of Governors of the Federal Reserve System (U.S.).
  2. Hannan, Timothy H. & Prager, Robin A., 2004. "The competitive implications of multimarket bank branching," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(8), pages 1889-1914, August.
  3. Robert DeYoung & William C. Hunter & Gregory F. Udell, 2003. "The past, present, and probable future for community banks," Working Paper Series, Federal Reserve Bank of Chicago WP-03-14, Federal Reserve Bank of Chicago.
  4. Berger, Allen N. & Rosen, Richard J. & Udell, Gregory F., 2007. "Does market size structure affect competition? The case of small business lending," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(1), pages 11-33, January.
  5. Prager, Robin A & Hannan, Timothy H, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 46(4), pages 433-52, December.
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  8. Robert M. Adams & Kenneth P. Brevoort & Elizabeth K. Kiser, 2005. "Who competes with whom? the case of depository institutions," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-03, Board of Governors of the Federal Reserve System (U.S.).
  9. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  10. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  11. Lawrence J. Radecki, 1998. "The expanding geographic reach of retail banking markets," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jun, pages 15-34.
  12. Corvoisier, Sandrine & Gropp, Reint, 2001. "Bank Concentration and Retail Interest Rates," Working Paper Series, European Central Bank 0072, European Central Bank.
  13. Elizabeth K. Kiser, 2004. "Modeling the whole firm: the effect of multiple inputs and financial intermediation on bank deposit rates," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-07, Board of Governors of the Federal Reserve System (U.S.).
  14. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
  15. Richard Rosen, 2002. "What Goes Up Must Come Down? Asymmetries and Persistence in Bank Deposit Rates," Journal of Financial Services Research, Springer, Springer, vol. 21(3), pages 173-193, June.
  16. Dean F. Amel & Martha Starr-McCluer, 2001. "Market definition in banking: recent evidence," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-16, Board of Governors of the Federal Reserve System (U.S.).
  17. R. Alton Gilbert & Adam M. Zaretsky, 2003. "Banking antitrust: are the assumptions still valid?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 29-52.
  18. Richard J. Rosen, 1993. "What goes up must come down? Asymmetries and persistence in bank deposit interest rates," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 93-36, Board of Governors of the Federal Reserve System (U.S.).
  19. Hannan, Timothy H., 1991. "Bank commercial loan markets and the role of market structure: evidence from surveys of commercial lending," Journal of Banking & Finance, Elsevier, Elsevier, vol. 15(1), pages 133-149, February.
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Citations

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Cited by:
  1. Craig, Ben R. & Dinger, Valeriya, 2008. "Bank mergers and the dynamics of deposit interest rates," Discussion Paper Series 2: Banking and Financial Studies 2008,02, Deutsche Bundesbank, Research Centre.
  2. Kauko , Karlo, 2005. "Bank interest rates in a small European economy: Some exploratory macro level analyses using Finnish data," Research Discussion Papers 9/2005, Bank of Finland.
  3. Ahmet Faruk Aysan & Mustafa Disli & Koen Schoors, 2013. "Bank Competition and Outreach: Evidence from Turkey," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 49(S5), pages 7-30, November.
  4. Robert DeYoung & Evren Örs, 2004. "Advertising and pricing at multiple-output firms: evidence from U.S. thrift institutions," Working Paper Series, Federal Reserve Bank of Chicago WP-04-25, Federal Reserve Bank of Chicago.
  5. Elizabeth Laderman, 2006. "Market power and relationships in small business lending," Working Paper Series 2007-07, Federal Reserve Bank of San Francisco.
  6. Dutkowsky, Donald H. & VanHoose, David D., 2011. "Interest on bank reserves and optimal sweeping," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(9), pages 2491-2497, September.
  7. John Boyd & Gianni De Nicolò & Abu M. Jalal, 2010. "Bank Competition, Asset Allocations and Risk of Failure: An Empirical Investigation," CESifo Working Paper Series 3198, CESifo Group Munich.
  8. Cubillas, Elena & Fonseca, Ana Rosa & González, Francisco, 2012. "Banking crises and market discipline: International evidence," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(8), pages 2285-2298.
  9. John Ashton & Andros Gregoriou & Jerome V. Healy, 2013. "The relative influence of price and choice factors on retail deposit quantities," Working Papers 13006, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  10. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
  11. Brown, Martin & Maurer, Maria Rueda & Pak, Tamara & Tynaev, Nurlanbek, 2009. "The impact of banking sector reform in a transition economy: Evidence from Kyrgyzstan," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(9), pages 1677-1687, September.
  12. King, Michael R., 2013. "The Basel III Net Stable Funding Ratio and bank net interest margins," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(11), pages 4144-4156.
  13. John H. Boyd & Gianni De Nicoló & Abu M. Jalal, 2009. "Bank Competition, Risk and Asset Allocations," IMF Working Papers 09/143, International Monetary Fund.

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