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The competitive implications of multimarket bank branching

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  • Timothy H. Hannan
  • Robin A. Prager

Abstract

Regulators and research economists typically view retail banking markets as locally limited, spanning an area that can often be approximated by a metropolitan area or a rural county. Banks are assumed to set retail prices based on the conditions of supply and demand prevailing within these local market areas. However, recent studies have found evidence that large, multimarket banking organizations tend to offer uniform interest rates for retail deposit accounts of a particular type throughout the area that they serve, at least within a given state. This uniform pricing phenomenon raises questions about the continued relevance of the concept of local banking markets for both research and antitrust purposes. We address this issue by developing and empirically testing a model to determine the effects of the presence of multimarket banks in a local geographic market on the deposit interest rates offered by single-market banks serving that same local market.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2001-43.

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Date of creation: 2001
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Handle: RePEc:fip:fedgfe:2001-43

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Keywords: Banks and banking ; Econometric models ; Prices;

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References

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  1. 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.
  2. Paul S. Calem & Gerald A. Carlino, 1989. "The concentration/conduct relationship in bank deposit markets," Working Papers 89-26, Federal Reserve Bank of Philadelphia.
  3. 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.
  4. 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.
  5. Steven Pilloff & Stephen Rhoades, 2002. "Structure and Profitability in Banking Markets," Review of Industrial Organization, Springer, vol. 20(1), pages 81-98, February.
  6. Robert Tokle & Joanne Tokle, 2000. "The Influence of Credit Union and Savings and Loan Competition on Bank Deposit Rates in Idaho and Montana," Review of Industrial Organization, Springer, vol. 17(4), pages 427-439, December.
  7. 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.
  8. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  9. Myron L. Kwast & Martha Starr-McCluer & John D. Wolken, 1997. "Market definition and the analysis of antitrust in banking," Finance and Economics Discussion Series 1997-52, Board of Governors of the Federal Reserve System (U.S.).
  10. Pita Barros, Pedro, 1999. "Multimarket competition in banking, with an example from the Portuguese market," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 335-352, April.
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  1. Guest Post: A New Financial Foundation?
    by Leo Kolivakis in Naked capitalism on 2009-06-16 11:40:00
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