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Geographic deregulation and commercial bank performance in U.S. state banking markets

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  • Zou, YongDong
  • Miller, Stephen M.
  • Malamud, Bernard

Abstract

This paper examines the effects of geographical deregulation on commercial bank performance across states. We reach several general conclusions. First, the process of deregulation on an intrastate basis generally improves bank profitability and performance with higher returns and reduced riskiness. Deregulation of interstate banking produces mixed findings. For small banks, interstate banking deregulation leads to reduced riskiness. For medium-sized banks, it leads to increased riskiness. And for large banks, it leads to increased and decreased riskiness depending on the risk variable considered. Second, macroeconomic variables - the unemployment rate, real personal income per capita, and the growth rate of real personal income - and the average interest rate affect bank performance as much, or more, than the process of deregulation, especially for the small and medium-sized banks. The large banks, however, generally do not respond significantly to state-level macroeconomic variables or the average interest rate. Finally, while some analysts argue that deregulation toward full interstate banking and branching produced more efficient banks and a healthier banking system, we find mixed results on this issue.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 51 (2011)
Issue (Month): 1 (February)
Pages: 28-35

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Handle: RePEc:eee:quaeco:v:51:y:2011:i:1:p:28-35

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Web page: http://www.elsevier.com/locate/inca/620167

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Keywords: Commercial banks Geographic deregulation Bank performance;

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  1. Yongil Jeon & Stephen M. Miller, 2007. "Births, Deaths, And Marriages In The U.S. Commercial Banking Industry," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 325-341, 04.
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  3. David P. Ely & Kenneth J. Robinson, 2001. "Consolidation, technology, and the changing structure of banks' small business lending," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 23-32.
  4. Allen N. Berger & Loretta J. Mester, 2001. "Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation and Dynamic Changes in Competition," Center for Financial Institutions Working Papers 01-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 135-194, February.
  6. Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 141-61, May.
  7. Nippani, Srinivas & Green, Kenneth Jr., 2002. "The banking industry after the Riegle-Neal Act: re-structure and overall performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(5), pages 901-909.
  8. Jayaratne, Jith & Strahan, Philip E, 1998. "Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 239-73, April.
  9. Carow, Kenneth A. & Heron, Randall A., 1998. "The interstate banking and branching efficiency act of 1994: A wealth event for acquisition targets," Journal of Banking & Finance, Elsevier, vol. 22(2), pages 175-196, February.
  10. Jith Jayaratne & Philip E. Strahan, 1997. "The benefits of branching deregulation," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 13-29.
  11. Stephen M. Miller & Yongil Jeon, 2003. "Deregulation and Structural Change in the U.S. Commercial Banking Industry," Eastern Economic Journal, Eastern Economic Association, vol. 29(3), pages 391-414, Summer.
  12. Stiroh, Kevin J & Strahan, Philip E, 2003. " Competitive Dynamics of Deregulation: Evidence from U.S. Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 801-28, October.
  13. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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Cited by:
  1. Kondo, Kazumine, 2014. "Cross-Prefecture Expansion of Regional Banks in Japan and Its Effects on Lending-Based Income," MPRA Paper 52978, University Library of Munich, Germany.
  2. Fredriksson, Antti & Moro, Andrea, 2014. "Bank–SMEs relationships and banks’ risk-adjusted profitability," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 67-77.

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