The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition Among Small and Large Banks
AbstractThis paper suggests that the introduction of bank branching restrictions and federal deposit insurance in the United States likely was motivated by political considerations. Specifically, we argue that these restrictions were instituted for the benefit of the small, unit banks that were unable to compete effectively with large, multi-unit banks. We analyze this "political hypothesis" in two steps. First, we use a model of monopolistic competition between small and large banks to examine gains to the former group from the introduction of branching restrictions and government-sponsored deposit insurance. We then find strong evidence for the political hypothesis by examining the voting record of Congress.
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Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 93-23.
Date of creation: 1993
Date of revision:
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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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Other versions of this item:
- Economides, Nicholas & Hubbard, R Glenn & Palia, Darius, 1996. "The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition among Small and Large Banks," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 667-704, October.
- Economides, N. & Hubbard, R.G. & Palia, D., 1995. "The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition Among Small and Large Banks," Papers 95-14, Columbia - Graduate School of Business.
- Nicholas Economides & R. Glenn Hubbard & Darius Palia, 1996. "The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition among Small and Large Banks," NBER Working Papers 5210, National Bureau of Economic Research, Inc.
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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