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Is commercial banking a distinct line of commerce?

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Author Info

  • Lynn W. Woosley
  • B. Frank King
  • Michael S. Padhi
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    Abstract

    In analyzing the competitive impacts of bank consolidations, banking agencies and the U.S. Department of Justice tend to rely on the assumption that the market for bank services is local and is for services offered only by banks. This approach allows analysts to merge all products and services into a "cluster of services" for analysis of competition. Increases in types and locations of competitors have cast doubt on whether a cluster of services exists, however. ; These changes have induced the U.S. Department of Justice to do separate analyses of small business lending when analyzing consolidations. This article compares measures of market concentration across deposit and small business loan products to answer two questions crucial for antitrust analysis: Are small business lending markets local, and are deposits an adequate proxy for small business loans? For their analysis, the authors use new information provided by Community Reinvestment Act data, which give a broader picture of out-of-market participation in a local small business lending market and therefore an indication of the degree of competitive pressure applied by these institutions. The findings indicate that the convenience of local offices can be overcome at least partly by distant lenders offering, for example, better rates, greater access to credit, or more flexible products or hours of service. The authors conclude that, while additional research is needed, using multiple measures of market concentration is likely to give a truer picture of competition, especially in marginal cases.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

    Volume (Year): (2000)
    Issue (Month): Q4 ()
    Pages: 39-58

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    Handle: RePEc:fip:fedaer:y:2000:i:q4:p:39-58:n:v.85no.4

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    Related research

    Keywords: Bank supervision ; Commercial loans ; Banks and banking;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Gregory E. Elliehausen & John D. Wolken, 1990. "Banking markets and the use of financial services by small and medium- sized businesses," Staff Studies 160, Board of Governors of the Federal Reserve System (U.S.).
    2. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    3. Jackson, William III & Eisenbeis, Robert A., 1997. "Geographic integration of bank deposit markets and restrictions on interstate banking: A cointegration approach," Journal of Economics and Business, Elsevier, vol. 49(4), pages 335-346.
    4. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    5. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
    6. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    7. Frame, W Scott & Srinivasan, Aruna & Woosley, Lynn, 2001. "The Effect of Credit Scoring on Small-Business Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 813-25, August.
    8. Allen N. Berger & Gregory F. Udell, 1995. "Universal Banking and the Future of Small Business Lending," Center for Financial Institutions Working Papers 95-17, Wharton School Center for Financial Institutions, University of Pennsylvania.
    9. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
    10. Kwast, Myron L., 1999. "Bank mergers: What should policymakers do?," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 629-636, February.
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