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Bank mergers and the dynamics of deposit interest rates

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Author Info
Ben R Craig
Valeriya Dinger

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Abstract

Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, we aim for a comprehensive empirical analysis of a bank merger’s impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 U.S. banks with a monthly frequency for the time period 1997–2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the United States. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger, bank, and local market features. An innovation of our work is the introduction of an econometric approach for estimating the change of the deposit rates given their rigidity.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0806.

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Date of creation: 2008
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Handle: RePEc:fip:fedcwp:0806

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Keywords: Bank mergers ; Bank deposits;

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  1. Reint Gropp & Sandrine Corvoisier, 2001. "Bank concentration and retail interest rates," Working Paper Series 072, European Central Bank. [Downloadable!]
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  2. Billett, Matthew T. & Garfinkel, Jon A. & O'Neal, Edward S., 1998. "The cost of market versus regulatory discipline in banking1," Journal of Financial Economics, Elsevier, vol. 48(3), pages 333-358, June. [Downloadable!] (restricted)
  3. Taylor, Mark P. & Schmidt, Markus & Reitz, Stefan, 2007. "End-user order flow and exchange rate dynamics," Discussion Paper Series 1: Economic Studies 2007,05, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September. [Downloadable!] (restricted)
  5. David Neumark & Steven A. Sharpe, 1989. "Market structure and the nature of price rigidity: evidence from the market for consumer deposits," Finance and Economics Discussion Series 52, Board of Governors of the Federal Reserve System (U.S.).
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  6. Mester, Loretta J. & Saunders, Anthony, 1995. "When does the prime rate change?," Journal of Banking & Finance, Elsevier, vol. 19(5), pages 743-764, August. [Downloadable!] (restricted)
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