Advanced Search
MyIDEAS: Login to save this paper or follow this series

Entry restrictions, industry evolution and dynamic efficiency: evidence from commercial banking

Contents:

Author Info

  • Jith Jayaratne
  • Philip E. Strahan
Registered author(s):

    Abstract

    This paper shows that bank performance improves significantly after restrictions on bank expansion are lifted. We find that profits increase and loan quality improves after states permit statewide branching, and--to a lesser extent--after states allow interstate banking. The improvements following branching deregulation appear to occur because better banks increase market share at the expense of their less efficient rivals. By retarding the "natural" evolution of the industry, branching restrictions reduced the performance of the average banking asset. We also find limited support for the hypothesis that more competitive banking markets following deregulation better discipline bank managers, thereby improving bank performance.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.newyorkfed.org/research/staff_reports/research_papers/9630.html
    Download Restriction: no

    File URL: http://www.newyorkfed.org/research/staff_reports/research_papers/9630.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9630.

    as in new window
    Length:
    Date of creation: 1996
    Date of revision:
    Handle: RePEc:fip:fednrp:9630

    Contact details of provider:
    Postal: 33 Liberty Street, New York, NY 10045-0001
    Email:
    Web page: http://www.newyorkfed.org/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: Bank competition ; Bank management ; Branch banks ; Commercial loans;

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Susan McLaughlin, 1995. "The impact of interstate banking and branching reform: evidence from the states," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 1(May).
    2. Allen N. Berger & Timothy H. Hannan, 1988. "The price-concentration relationship in banking," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 23, Board of Governors of the Federal Reserve System (U.S.).
    3. Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
    4. Douglas D. Evanoff & Diana L. Fortier, 1987. "Reevaluation of the structure-conduct-performance paradigm in banking," Staff Memoranda 87-9, Federal Reserve Bank of Chicago.
    5. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, Elsevier, vol. 17(2-3), pages 221-249, April.
    6. Paul S. Calem, 1994. "The impact of geographic deregulation on small banks," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Nov, pages 17-31.
    7. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521818551.
    8. R. Glenn Hubbard & Darius Palia, 1994. "Executive Pay and Performance: Evidence from the U.S. Banking Industry," NBER Working Papers 4704, National Bureau of Economic Research, Inc.
    9. Stephen A. Rhoades, 1986. "The operating performance of acquired firms in banking before and after acquisition," Staff Studies 149, Board of Governors of the Federal Reserve System (U.S.).
    10. Rhoades, Stephen A., 1982. "Welfare loss, redistribution effect, and restriction of output due to monopoly in banking," Journal of Monetary Economics, Elsevier, Elsevier, vol. 9(3), pages 375-387.
    11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
    12. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 639-70, August.
    13. Flannery, Mark J., 1984. "The social costs of unit banking restrictions," Journal of Monetary Economics, Elsevier, Elsevier, vol. 13(2), pages 237-249, March.
    14. Schranz, Mary S, 1993. "Takeovers Improve Firm Performance: Evidence from the Banking Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(2), pages 299-326, April.
    15. Warren G. Lavey, 1974. "Transportation/Communication Considerations in the Location of Headquarters for Multi-Establishment Manufacturing Firms," NBER Working Papers 0052, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Naoko Kojo, 2000. "Bangladesh : Financial Sector Distress and Lost Economic Growth," World Bank Other Operational Studies 15476, The World Bank.
    2. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The effects of bank mergers and acquisitions on small business lending," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1997-28, Board of Governors of the Federal Reserve System (U.S.).
    3. Charles W. Calomiris & Thanavut Pornrojnangkool, 2005. "Monopoly-Creating Bank Consolidation? The Merger of Fleet and BankBoston," NBER Working Papers 11351, National Bureau of Economic Research, Inc.
    4. Claessens, Stijn & Glaessner, Tom, 1998. "The internationalization of financial services in Asia," Policy Research Working Paper Series 1911, The World Bank.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fednrp:9630. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.