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The Effects of Interstate Banking on Commercial Banks' Risk and Profitability

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  • Chong, Beng Soon

Abstract

Historically, the effect of interstate banking on the risk and profitability of commercial banks has been a controversial issue. Using capital market data and an event study methodology, the author tests the effects of interstate banking. The findings of this paper reject the hypothesis that interstate banking has no effect on banks' risk and profitability. The evidence supports the argument that interstate banking benefits commercial banks in terms of increased profitability, but the increase in profitability is also associated with significant increases in the banks' exposure to market risk. Copyright 1991 by MIT Press.

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  • Chong, Beng Soon, 1991. "The Effects of Interstate Banking on Commercial Banks' Risk and Profitability," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 78-84, February.
  • Handle: RePEc:tpr:restat:v:73:y:1991:i:1:p:78-84
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    Cited by:

    1. Chong, Beng-Soon & Liu, Ming-Hua & Altunbas, Yener, 1996. "The impact of universal banking on the risks and returns of Japanese financial institutions," Pacific-Basin Finance Journal, Elsevier, pages 181-195.
    2. Gary Gorton & Andrew Winton, 2002. "Financial Intermediation," Center for Financial Institutions Working Papers 02-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Rungporn Roengpitya, 2008. "The Effects of Financial Deregulation on Bank Governance: The Panel Data Evidence of the 1990s," Working Papers 2008-08, Monetary Policy Group, Bank of Thailand.
    4. Jong-Kun Lee & Biaggio Bossone, 2002. "In Finance, Size Matters," IMF Working Papers 02/113, International Monetary Fund.
    5. Armah, Bernard K.N. & Park, Timothy A. & Lovell, C.A. Knox, 1999. "Evaluating the Performance of Agricultural Bank Management: The Impact of State Regulatory Policies," Journal of Agricultural and Applied Economics, Cambridge University Press, pages 437-448.
    6. Thorsten Beck, 2007. "Bank Concentration and Fragility. Impact and Mechanics," NBER Chapters,in: The Risks of Financial Institutions, pages 193-234 National Bureau of Economic Research, Inc.
    7. DeYoung, Robert & Hasan, Iftekhar & Kirchhoff, Bruce, 1998. "The Impact of Out-of-State Entry on the Cost Efficiency of Local Commercial Banks," Journal of Economics and Business, Elsevier, pages 191-203.
    8. Mansur Lubabah Kwambo & Ahmad Bawa Abdul-Qadir, 2013. "Dispersed Equity Holding and Financial Performance of Banks in Nigeria," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(1), pages 238-247, January.
    9. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552 Elsevier.
    10. Kondo, Kazumine, 2017. "Does Branch Network Size Influence Positively the Management Performance of Japanese Regional Banks?," MPRA Paper 81257, University Library of Munich, Germany.
    11. Rivard, Richard J. & Thomas, Christopher R., 1997. "The effect of interstate banking on large bank holding company profitability and risk," Journal of Economics and Business, Elsevier, pages 61-76.
    12. Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 1996. "Safety in numbers? Geographic diversification and bank insolvency risk," Proceedings 504, Federal Reserve Bank of Chicago.
    13. Hughes, Joseph P. & Lang, William W. & Mester, Loretta J. & Moon, Choon-Geol, 1999. "The dollars and sense of bank consolidation," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 291-324, February.
    14. Akhigbe, Aigbe & Whyte, Ann Marie, 2003. "Changes in market assessments of bank risk following the Riegle-Neal Act of 1994," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 87-102, January.
    15. Beck, Thorsten, 2008. "Bank competition and financial stability : friends or foes ?," Policy Research Working Paper Series 4656, The World Bank.
    16. Bharat Barot, 2004. "How accurate are the Swedish forecasters on GDB-Growth, CPI-inflation and unemployment? (1993 - 2001)," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, pages 249-278.
    17. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May.
    18. Horst Gischer & Toni Richter, 2011. "'Global Player' im Bankenwesen - ökonomisch sinnvoll oder problembehaftet?," FEMM Working Papers 110012, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    19. Shiers, Alden F., 2002. "Branch banking, economic diversity and bank risk," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 587-598.
    20. Elizabeth S. Laderman & Randall J. Pozdena, 1991. "Interstate banking and competition: evidence from the behavior of stock returns," Economic Review, Federal Reserve Bank of San Francisco, issue Spr, pages 32-47.
    21. Kondo, Kazumine, 2014. "Cross-Prefecture Expansion of Regional Banks in Japan and Its Effects on Lending-Based Income," MPRA Paper 52978, University Library of Munich, Germany.
    22. Ross Levine & Chen Lin & Wensi Xie, 2016. "Geographic Diversification and Banks’ Funding Costs," NBER Working Papers 22544, National Bureau of Economic Research, Inc.

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