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Bank Consolidation and the Dynamics of Consumer Loan Interest Rates

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Author Info

  • Charles Kahn

    (University of Illinois)

  • Ben Sopranzetti

    (Rutgers University)

Abstract

This paper analyzes interest rates quoted by individual banks for personal and automobile loans in 10 cities. Personal loan rates are higher in concentrated markets, and banks involved in mergers reduce personal rates relative to their competitors prior to the merger's completion. This is consistent with mergers changing the size structure of personal loan markets and merger participants' desire to gain regulatory approval. Auto rates are unaffected by local concentration and mergers, suggesting that their market is nationwide. Rates for both loan types respond asymmetrically to changes in Treasury rates, being more sensitive to a rise than a fall.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 78 (2005)
Issue (Month): 1 (January)
Pages: 99-134

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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:1:p:99-134

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Amidu, Mohammed & Wolfe, Simon, 2013. "The effect of banking market structure on the lending channel: Evidence from emerging markets," Review of Financial Economics, Elsevier, vol. 22(4), pages 146-157.
  2. Pérez Montes, Carlos, 2014. "The effect on competition of banking sector consolidation following the financial crisis of 2008," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 124-136.
  3. Simone Miyuki Hirakawa & Rodrigo De Losso da Silveira Bueno, 2011. "Does location matter toexplain loan interest rates? Evidence from Brazilian local bankingmarkets," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 127, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  4. Robert Adams & Richard Johnson & Steven Pilloff, 2009. "Market Structure after Horizontal Mergers: Evidence from the Banking Industry," Review of Industrial Organization, Springer, vol. 35(3), pages 217-231, November.
  5. Erel, Isil, 2007. "The Effect of Bank Mergers on Loan Prices: Evidence from the U.S," Working Paper Series 2006-19, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  6. Roy Cerqueti, 2012. "Financing policies via stochastic control: a dynamic programming approach," Journal of Global Optimization, Springer, vol. 53(3), pages 539-561, July.
  7. Brissimis, Sophocles & Delis, Mannthos & Iosifidi, Maria, 2012. "Bank market power and monetary policy transmission," MPRA Paper 49206, University Library of Munich, Germany.
  8. Iftekhar Hasan & Heiko Schmiedel & Liang Song, 2012. "Returns to Retail Banking and Payments," Journal of Financial Services Research, Springer, vol. 41(3), pages 163-195, June.
  9. David S. Scharfstein & Adi Sunderam, 2013. "Concentration in Mortgage Lending, Refinancing Activity and Mortgage Rates," NBER Working Papers 19156, National Bureau of Economic Research, Inc.
  10. Lili Xie, 2007. "Bank Consolidation and Loan Pricing," Working Papers 200706, Ball State University, Department of Economics, revised Nov 2007.

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