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Bank Performance: Market Power or Efficient Structure?

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Author Info
Yonjil Jeon (Central Michigan University)
Stephen M. Miller (University of Nevada, Las Vegas, and University of Connecticut)

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Abstract

Regulatory change not seen since the Great Depression swept the U.S. banking industry beginning in the early 1980s, culminating with the Interstate Banking and Branching Efficiency Act of 1994. Significant consolidations have occurred in the banking industry. This paper considers the market-power versus the efficient-structure theories of the positive correlation between banking concentration and performance on a state-by-state basis. Temporal causality tests imply that bank concentration leads bank profitability, supporting the market-power, rather than the efficient-structure, theory of that positive correlation. Our finding suggests that bank regulators, by focusing on local banking markets, missed the initial stages of an important structural change at the state level.

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File URL: http://www.econ.uconn.edu/working/2005-23.pdf
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Publisher Info
Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2005-23.

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Length: 27 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:uct:uconnp:2005-23

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Related research
Keywords: commercial banks concentration profitability

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Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G2 - Financial Economics - - Financial Institutions and Services

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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.:
  1. Stiroh, Kevin J & Strahan, Philip E, 2003. " Competitive Dynamics of Deregulation: Evidence from U.S. Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 801-28, October.
  2. Lawrence J. Radecki, 1998. "The expanding geographic reach of retail banking markets," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 15-34. [Downloadable!]
  3. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-71, May. [Downloadable!] (restricted)
  4. Yongil Jeon & Stephen M. Miller, 2002. "Has Deregulation Affected Births, Deaths, and Marriages in the U.S. Commercial Banking Industry?," Working papers 2002-26, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  5. Berger, Allen N. & Mester, Loretta J., 2003. "Explaining the dramatic changes in performance of US banks: technological change, deregulation, and dynamic changes in competition," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 57-95, January. [Downloadable!] (restricted)
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  6. David P. Ely & Kenneth J. Robinson, 2001. "Consolidation, technology, and the changing structure of banks' small business lending," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 23-32. [Downloadable!]
  7. Jayaratne, Jith & Strahan, Philip E, 1998. "Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking," Journal of Law & Economics, University of Chicago Press, vol. 41(1), pages 239-73, April.
  8. Stephen M. Miller & Yongil Jeon, 2003. "Deregulation and Structural Change in the U.S. Commercial Banking Industry," Eastern Economic Journal, Eastern Economic Association, vol. 29(3), pages 391-414, Summer. [Downloadable!]
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  9. 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, vol. 17(2-3), pages 221-249, April. [Downloadable!] (restricted)
  10. Astrid A. Dick, 2006. "Nationwide Branching and Its Impact on Market Structure, Quality, and Bank Performance," Journal of Business, University of Chicago Press, vol. 79(2), pages 567-592, March. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Yongil Jeon & Stephen M. Miller, 2005. "An 'Ideal' Decomposition of Industry Dynamics: An Application to the Nationwide and State Level U.S. Banking Industry," Working papers 2005-25, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  2. Yongil Jeon & Stephen M. Miller, 2005. "Has Deregulation Affected Births, Deaths, and Marriages in the U.S. Commercial Banking Industry?," Working papers 2005-24, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
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