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The profitability of small, single-market banks in an era of multimarket banking

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  • Timothy H. Hannan
  • Robin A. Prager

Abstract

This paper examines the relationship between multimarket bank presence and the profitability (and therefore viability) of small, single-market banks. We find that increased presence of multimarket banks is associated with a significant reduction in the profitability of small, single-market banks operating in rural banking markets, but not of those operating in urban markets. We explore this relationship by breaking single-market bank profits down into several components in order to shed light on the mechanisms through which multimarket bank presence might influence the profitability of single-market banks.

Suggested Citation

  • Timothy H. Hannan & Robin A. Prager, 2006. "The profitability of small, single-market banks in an era of multimarket banking," Finance and Economics Discussion Series 2006-41, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2006-41
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    References listed on IDEAS

    as
    1. Elizabeth K. Kiser, 2004. "Modeling the whole firm: the effect of multiple inputs and financial intermediation on bank deposit rates," Finance and Economics Discussion Series 2004-07, Board of Governors of the Federal Reserve System (U.S.).
    2. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
    3. Berger, Allen N. & Rosen, Richard J. & Udell, Gregory F., 2007. "Does market size structure affect competition? The case of small business lending," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 11-33, January.
    4. 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.
    5. Dick, Astrid A., 2008. "Demand estimation and consumer welfare in the banking industry," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1661-1676, August.
    6. Hannan, Timothy H., 2006. "Retail deposit fees and multimarket banking," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2561-2578, September.
    7. Lawrence J. Radecki, 1998. "The expanding geographic reach of retail banking markets," Economic Policy Review, Federal Reserve Bank of New York, vol. 4(Jun), pages 15-34.
    8. Allen N. Berger & Astrid A. Dick & Lawrence G. Goldberg & Lawrence J. White, 2007. "Competition from Large, Multimarket Firms and the Performance of Small, Single-Market Firms: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 331-368, March.
    9. Hannan, Timothy H. & Prager, Robin A., 2004. "The competitive implications of multimarket bank branching," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1889-1914, August.
    10. Hannan, Timothy H. & Prager, Robin A., 2006. "Multimarket bank pricing: An empirical investigation of deposit interest rates," Journal of Economics and Business, Elsevier, vol. 58(3), pages 256-272.
    11. Steven Pilloff, 1999. "Does the Presence of Big Banks Influence Competition in Local Markets?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(3), pages 159-177, May.
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    Keywords

    Banks and banking; Bank profits;

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