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Bank Mergers and the Dynamics of Deposit Interest Rates

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  • Ben Craig
  • Valeriya Dinger

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 U.S. 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 United States. 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 for estimating the change of the deposit rates given their rigidity.
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  • Ben Craig & Valeriya Dinger, 2009. "Bank Mergers and the Dynamics of Deposit Interest Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 111-133, December.
    • Handle: RePEc:kap:jfsres:v:36:y:2009:i:2:p:111-133
    DOI: 10.1007/s10693-008-0042-7
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    Cited by:

    1. 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, March.
    2. Valeriya Dinger, 2015. "Bank Mergers and Deposit Rate Rigidity," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(1), pages 27-56, February.
    3. Craig, Ben R. & Dinger, Valeriya, 2013. "Deposit market competition, wholesale funding, and bank risk," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3605-3622.
    4. Chen, Zhongfei & Wanke, Peter & Tsionas, Mike G., 2018. "Assessing the strategic fit of potential M&As in Chinese banking: A novel Bayesian stochastic frontier approach," Economic Modelling, Elsevier, vol. 73(C), pages 254-263.
    5. George Halkos & Roman Matousek & Nickolaos Tzeremes, 2016. "Pre-evaluating technical efficiency gains from possible mergers and acquisitions: evidence from Japanese regional banks," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 47-77, January.
    6. Nevermann, Daniel & Heckmann, Lotta, 2023. "Effects of mergers on network models of the financial system," Discussion Papers 29/2023, Deutsche Bundesbank.
    7. Nguyen, My & Perera, Shrimal & Skully, Michael, 2017. "Bank market power, asset liquidity and funding liquidity: International evidence," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 23-38.
    8. George E. Halkos & Roman Matousek & Nickolaos G. Tzeremes, 2016. "Pre-evaluating technical efficiency gains from possible mergers and acquisitions: evidence from Japanese regional banks," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 47-77, January.
    9. Russ Kashian & Richard McGregory & Neil Lockwood, 2014. "Do Minority-owned Banks Pay Higher Interest Rates on CDs?," The Review of Black Political Economy, Springer;National Economic Association, vol. 41(1), pages 13-24, March.
    10. Pérez Montes, Carlos, 2014. "The effect on competition of banking sector consolidation following the financial crisis of 2008," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 124-136.
    11. Wilson, John O.S. & Casu, Barbara & Girardone, Claudia & Molyneux, Philip, 2010. "Emerging themes in banking: Recent literature and directions for future research," The British Accounting Review, Elsevier, vol. 42(3), pages 153-169.
    12. Ly, Kim Cuong & Shimizu, Katsutoshi, 2018. "Funding liquidity risk and internal markets in multi-bank holding companies: Diversification or internalization?," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 77-89.
    13. Pedro Barros & Diana Bonfim & Moshe Kim & Nuno Martins, 2014. "Counterfactual analysis of bank mergers," Empirical Economics, Springer, vol. 46(1), pages 361-391, February.
    14. Nguyen, Thach V.H. & Nguyen, Thai Vu Hong, 2022. "How do banks price liquidity? The role of market power," Global Finance Journal, Elsevier, vol. 53(C).
    15. Yoshiaki Ogura & Hirofumi Uchida, 2014. "Bank Consolidation and Soft Information Acquisition in Small Business Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(2), pages 173-200, April.
    16. Hailey Ballew & Michael Iselin & Allison Nicoletti, 2022. "Accounting-based thresholds and growth decisions in the banking industry," Review of Accounting Studies, Springer, vol. 27(1), pages 232-274, March.
    17. John K. Ashton, 2012. "Do Depositors Benefit from Bank Mergers? An Examination of the UK Deposit Market," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 19(1), pages 1-23, February.
    18. 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, vol. 37(5), pages 1658-1668.
    19. 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;Western Finance Association, vol. 36(2), pages 87-110, December.
    20. Valeriya Dinger & Jürgen von Hagen, 2011. "The Competitive Advantage of Incumbents: Evidence from Newly Liberalized Banking Industries," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 578-607, December.
    21. Gulamhussen, Mohamed Azzim & Hennart, Jean-François & Pinheiro, Carlos Manuel, 2016. "What drives cross-border M&As in commercial banking?," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 6-18.
    22. Nevermann, Daniel & Heckmann-Draisbach, Lotta, 2023. "Effects of mergers on network models of the financial system," International Review of Financial Analysis, Elsevier, vol. 90(C).

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    More about this item

    Keywords

    Deposit rate dynamics; Bank mergers; Deposit rate rigidity; G21; L11;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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