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Bank mergers and the dynamics of deposit interest rates

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  • Craig, Ben R.
  • Dinger, Valeriya

Abstract

Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, we aim for a comprehensive empirical analysis of a bank merger's impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 US banks with a monthly frequency for the time period 1997-2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the US. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger, bank and local market features. An innovation of our work is the introduction of an econometric approach of estimating the change of the deposit rates given their rigidity. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2008,02.

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Date of creation: 2008
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Handle: RePEc:zbw:bubdp2:7218

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Keywords: Deposit rate dynamics; bank mergers; deposit rate rigidity;

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References

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  1. Charles Kahn & George Pennacchi & Ben Sopranzetti, 2001. "Bank Consolidation and Consumer Loan Interest Rates," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 01-14, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Corvoisier, Sandrine & Gropp, Reint, 2001. "Bank Concentration and Retail Interest Rates," Working Paper Series, European Central Bank 0072, European Central Bank.
  3. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The effects of bank mergers and acquisitions on small business lending," Proceedings, Federal Reserve Bank of Chicago 549, Federal Reserve Bank of Chicago.
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  7. Gropp, Reint & Kok, Christoffer & Lichtenberger, Jung-Duk, 2007. "The dynamics of bank spreads and financial structure," Working Paper Series, European Central Bank 0714, European Central Bank.
  8. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
  9. Richard J. Rosen, 2003. "Banking market conditions and deposit interest rates," Working Paper Series, Federal Reserve Bank of Chicago WP-03-19, Federal Reserve Bank of Chicago.
  10. Corwin D. Edwards, 1955. "Conglomerate Bigness as a Source of Power," NBER Chapters, in: Business Concentration and Price Policy, pages 331-359 National Bureau of Economic Research, Inc.
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  13. Kim, E Han & Singal, Vijay, 1993. "Mergers and Market Power: Evidence from the Airline Industry," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 549-69, June.
  14. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
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Cited by:
  1. Yoshiaki Ogura & Hirofumi Uchida, 2014. "Bank Consolidation and Soft Information Acquisition in Small Business Lending," Journal of Financial Services Research, Springer, Springer, vol. 45(2), pages 173-200, April.
  2. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer, Springer, vol. 36(2), pages 87-110, December.
  3. Hong Liu & Phil Molyneux & John O. S. Wilson, 2013. "Competition And Stability In European Banking: A Regional Analysis," Manchester School, University of Manchester, vol. 81(2), pages 176-201, 03.
  4. PĂ©rez Montes, Carlos, 2014. "The effect on competition of banking sector consolidation following the financial crisis of 2008," Journal of Banking & Finance, Elsevier, Elsevier, vol. 43(C), pages 124-136.
  5. Pedro Pita Barros & Diana Bonfim & Moshe Kim & Nuno C. Martins, 2010. "Counterfactual Analysis of Bank Mergers," Working Papers, Banco de Portugal, Economics and Research Department w201005, Banco de Portugal, Economics and Research Department.
  6. Halkos, George E. & Tzeremes, Nickolaos G., 2013. "Estimating the degree of operating efficiency gains from a potential bank merger and acquisition: A DEA bootstrapped approach," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(5), pages 1658-1668.

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