Bank diversification, market structure and bank risk taking: theory and evidence from U.S. commercial banks
This paper studies how a bank’s diversification affects its own risk taking behavior and the risk taking of competing, nondiversified banks. By combining theories of bank organization, market structure and risk taking, I show that greater geographic diversification of banks changes a bank’s lending behavior and market interest rates, which also has ramifications for nondiversified competitors due to interactions in the banking market. Empirical results obtained from the U.S. commercial banking sector support this relationship as they indicate that a bank’s risk taking is lower when its competitors have a more diversified branch network. By utilizing the state-specific timing of a removal of intrastate branching restrictions in two identification strategies, I further pin down a causal relationship between the diversification of competitors and a bank’s risk taking behavior. These findings indicate that a bank’s diversification also impacts the risk taking of competitors, even if these banks are not diversifying their activities.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210|
Web page: http://www.bos.frb.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Bongini, Paola & Laeven, Luc & Majnoni, Giovanni, 2002. "How good is the market at assessing bank fragility? A horse race between different indicators," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 1011-1028, May.
- Dell'Ariccia, Giovanni & Marquez, Robert, 2004. "Information and bank credit allocation," Journal of Financial Economics, Elsevier, vol. 72(1), pages 185-214, April.
- Charles W. Calomiris & Joseph R. Mason, 2001.
"Causes of U.S. bank distress during the depression,"
714, Federal Reserve Bank of Chicago.
- Charles W. Calomiris & Joseph R. Mason, 2000. "Causes of U.S. Bank Distress During the Depression," NBER Working Papers 7919, National Bureau of Economic Research, Inc.
- Elena Loukoianova & Gianni De Nicolo & John H. Boyd, 2009.
"Banking Crises and Crisis Dating; Theory and Evidence,"
IMF Working Papers
09/141, International Monetary Fund.
- John Boyd & Gianni De Nicolò & Elena Loukoianova, 2010. "Banking Crises and Crisis Dating: Theory and Evidence," CESifo Working Paper Series 3134, CESifo Group Munich.
- Andrew Hertzberg & Jose Maria Liberti & Daniel Paravisini, 2010. "Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation," Journal of Finance, American Finance Association, vol. 65(3), pages 795-828, 06.
- Mark Carlson & Kris James Mitchener, 2009.
"Branch Banking as a Device for Discipline: Competition and Bank Survivorship during the Great Depression,"
Journal of Political Economy,
University of Chicago Press, vol. 117(2), pages 165-210, 04.
- Mark Carlson & Kris James Mitchener, 2007. "Branch Banking as a Device for Discipline: Competition and Bank Survivorship During the Great Depression," NBER Working Papers 12938, National Bureau of Economic Research, Inc.
- Jose M. Liberti & Atif R. Mian, 2009. "Estimating the Effect of Hierarchies on Information Use," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4057-4090, October.
When requesting a correction, please mention this item's handle: RePEc:fip:fedbqu:qau12-2. 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: (Michal Kowalik)
If references are entirely missing, you can add them using this form.