Branching Deregulation and Merger Optimality
AbstractThe U.S. banking industry has been characterized by intense merger activity in the absence of economies of scale and scope. We claim that the loosening of geographic constraints on U.S. banks is responsible for this consolidation process, irrespective of value-maximizing motives. We demonstrate this by putting forward a theoretical model of banking competition and studying banks’ strategic responses to geographic deregulation. We show that even in the absence of economies of scale and scope, bank mergers represent an optimal response. Also, we show that the consolidation process is characterized by merger waves and that some equilibrium mergers are not profitable per se -they yield losses- but become profitable as the waves of mergers unfold.
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Bibliographic InfoPaper provided by Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center in its series Working Papers with number 2010-02.
Length: 20 pages
Date of creation: Mar 2010
Date of revision:
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Banking Competition; Deregulation; Mergers;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-BAN-2010-04-17 (Banking)
- NEP-BEC-2010-04-17 (Business Economics)
- NEP-COM-2010-04-17 (Industrial Competition)
- NEP-IND-2010-04-17 (Industrial Organization)
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- Ana Lozano-Vivas & Miguel Meléndez-Jiménez & Antonio Morales, 2011. "With whom to merge? A tale of the Spanish banking deregulation process," SERIEs, Spanish Economic Association, vol. 2(2), pages 159-184, June.
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