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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. 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 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
  3. 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, vol. 31(1), pages 11-33, January.
  4. Andew Cohen & Michael Mazzeo, 2004. "Market structure and competition among retail depository institutions," Finance and Economics Discussion Series 2004-04, Board of Governors of the Federal Reserve System (U.S.).
  5. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
  6. 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 2004-07, Board of Governors of the Federal Reserve System (U.S.).
  7. Robert M. Adams & Kenneth P. Brevoort & Elizabeth K. Kiser, 2005. "Who competes with whom? the case of depository institutions," Finance and Economics Discussion Series 2005-03, Board of Governors of the Federal Reserve System (U.S.).
  8. Corvoisier, Sandrine & Gropp, Reint, 2002. "Bank concentration and retail interest rates," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2155-2189, November.
  9. 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.
  10. 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, vol. 15(1), pages 133-149, February.
  11. 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, vol. 46(4), pages 433-52, December.
  12. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-99, May.
  13. Robert DeYoung & William Hunter & Gregory Udell, 2004. "The Past, Present, and Probable Future for Community Banks," Journal of Financial Services Research, Springer, vol. 25(2), pages 85-133, April.
  14. Timothy H. Hannan & Robin A. Prager, 2001. "The competitive implications of multimarket bank branching," Finance and Economics Discussion Series 2001-43, Board of Governors of the Federal Reserve System (U.S.).
  15. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  16. Lawrence J. Radecki, 1998. "The expanding geographic reach of retail banking markets," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 15-34.
  17. Richard J. Rosen, 1993. "What goes up must come down? Asymmetries and persistence in bank deposit interest rates," Finance and Economics Discussion Series 93-36, Board of Governors of the Federal Reserve System (U.S.).
  18. Richard Rosen, 2002. "What Goes Up Must Come Down? Asymmetries and Persistence in Bank Deposit Rates," Journal of Financial Services Research, Springer, vol. 21(3), pages 173-193, June.
  19. Dean F. Amel & Martha Starr-McCluer, 2001. "Market definition in banking: recent evidence," Finance and Economics Discussion Series 2001-16, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
  2. Ben R Craig & Valeriya Dinger, 2008. "Bank mergers and the dynamics of deposit interest rates," Working Paper 0806, Federal Reserve Bank of Cleveland.
  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., vol. 49(S5), pages 7-30, November.
  4. 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.
  5. 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).
  6. Elizabeth Laderman, 2006. "Market power and relationships in small business lending," Working Paper Series 2007-07, Federal Reserve Bank of San Francisco.
  7. Dutkowsky, Donald H. & VanHoose, David D., 2011. "Interest on bank reserves and optimal sweeping," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2491-2497, September.
  8. Robert DeYoung & Evren Örs, 2004. "Advertising and pricing at multiple-output firms: evidence from U.S. thrift institutions," Working Paper Series WP-04-25, Federal Reserve Bank of Chicago.
  9. John H. Boyd & Gianni De Nicoló & Abu M. Jalal, 2009. "Bank Competition, Risk and Asset Allocations," IMF Working Papers 09/143, International Monetary Fund.
  10. 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.
  11. Cubillas, Elena & Fonseca, Ana Rosa & González, Francisco, 2012. "Banking crises and market discipline: International evidence," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2285-2298.
  12. 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, vol. 33(9), pages 1677-1687, September.
  13. King, Michael R., 2013. "The Basel III Net Stable Funding Ratio and bank net interest margins," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4144-4156.

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