Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking
This article shows that bank performance improves significantly after restrictions on bank expansion are lifted. We find that operating costs and loan losses decrease sharply after states permit statewide branching and, to a lesser extent, after states allow interstate banking. The improvements following branching deregulation appear to occur because better banks grow at the expense of their less efficient rivals. By retarding the "natural" evolution of the industry, branching restrictions reduced the performance of the average banking asset. We also find that most of the reduction in banks' costs were passed along to bank borrowers in the form of lower loan rates. Copyright 1998 by the University of Chicago.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 141-61, May.
- Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 639-670.
- Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
- Stavros Peristiani, 1996.
"Do mergers improve the x-efficiency and scale efficiency of U.S. banks?: Evidence from the 1980s,"
9623, Federal Reserve Bank of New York.
- Peristiani, Stavros, 1997. "Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 326-37, August.
- Schranz, Mary S, 1993. "Takeovers Improve Firm Performance: Evidence from the Banking Industry," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 299-326, April.
- Mark J. Flannery, .
"The Social Costs of Unit Banking Restrictions,"
Rodney L. White Center for Financial Research Working Papers
15-82, Wharton School Rodney L. White Center for Financial Research.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- Allen N. Berger & Robert DeYoung, 1997.
"Problem loans and cost efficiency in commercial banks,"
Finance and Economics Discussion Series
1997-8, Board of Governors of the Federal Reserve System (U.S.).
- Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
- Allen N. Berger & Robert DeYoung, 1995. "Problem Loans and Cost Efficiency in Commercial Banks," Center for Financial Institutions Working Papers 96-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Allen N. Berger & Timothy H. Hannan, 1988.
"The price-concentration relationship in banking,"
Finance and Economics Discussion Series
23, Board of Governors of the Federal Reserve System (U.S.).
- Susan McLaughlin, 1995. "The impact of interstate banking and branching reform: evidence from the states," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 1(May).
- Rhoades, Stephen A., 1982. "Welfare loss, redistribution effect, and restriction of output due to monopoly in banking," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 375-387.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:v:41:y:1998:i:1:p:239-73. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.