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Branching Deregulation and Merger Optimality

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  • Ana Lozano-Vivas

    ()
    (Department of Economic Theory, Universidad de Málaga)

  • Miguel A. Meléndez-Jímenez

    ()
    (Department of Economic Theory, Universidad de Málaga)

  • Antonio J. Morales

    ()
    (Department of Economic Theory, Universidad de Málaga)

Abstract

The 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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File URL: http://webdeptos.uma.es/THEconomica/malagawpseries/Papers/METCwp2010-2.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center in its series Working Papers with number 2010-02.

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Length: 20 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:mal:wpaper:2010-2

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Keywords: Banking Competition; Deregulation; Mergers;

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