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Branch banking and the geography of bank pricing

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  • Paul S. Calem
  • Leonard I. Nakamura

Abstract

We show that bank branching tends to mitigate localized market power by broadening the geographic scope of competition among banks, even though branch banking allows banks to differentiate themselves through their choices of branch locations. Banking services at peripheral locations will be priced more competitively when those locales are served by branch networks. We develop a theoretical model in support of this view and offer empirical evidence. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog
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  • Paul S. Calem & Leonard I. Nakamura, 1995. "Branch banking and the geography of bank pricing," Finance and Economics Discussion Series 95-25, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:95-25
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    1. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banche, territorio e sviluppo," Moneta e Credito, Economia civile, vol. 56(221), pages 3-43.
    2. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Staff Working Papers 04-24, Bank of Canada.
    3. Collender, Robert N. & Shaffer, Sherrill, 2003. "Local bank office ownership, deposit control, market structure, and economic growth," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 27-57, January.
    4. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    5. Pietro Alessandrini & Manuela Croci & Alberto Zazzaro, 2005. "The geography of banking power: role of function distance," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 58(235), pages 129-167.
    6. Hester Donald D. & Calcagnini Giorgio & De Bonis Riccardo, 2001. "Competition Through Innovation: ATMs in Italian Banks," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 359-382.
    7. Bostic, Raphael W. & Robinson, Breck L., 2004. "The impact of CRA agreements on community banks," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3069-3095, December.
    8. Temesvary, Judit, 2015. "Dynamic branching and interest rate competition of commercial banks: Evidence from Hungary," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 98-110.
    9. Örs, Evren & Rice, Tara, 2007. "Bank Imputed Interest Rates: Unbiased Estimates of Offered Rates?," CEPR Discussion Papers 6036, C.E.P.R. Discussion Papers.
    10. 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, vol. 50(2), pages 191-203, March.
    11. Kendall, Jake, 2012. "Local financial development and growth," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1548-1562.
    12. Buch, Claudia M., 2000. "Financial Market Integration in the US: Lessons for Europe?," Kiel Working Papers 1004, Kiel Institute for the World Economy (IfW).
    13. Hyytinen, Ari & Toivanen, Otto, 2004. "Monitoring and market power in credit markets," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 269-288, February.
    14. C. Okeahalam, 2008. "Does Bancassurance Reduce the Price of Financial Service Products?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 33(3), pages 147-162, June.
    15. Evren Damar, H., 2007. "Does post-crisis restructuring decrease the availability of banking services? The case of Turkey," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2886-2905, September.
    16. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banks, regions and development," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 56(224), pages 23-55.
    17. Joanna Stavins, 2004. "Do bank mergers affect Federal Reserve check volume?," Public Policy Discussion Paper 04-7, Federal Reserve Bank of Boston.
    18. Bhattacharya, Utpal & Groznik, Peter, 2008. "Melting pot or salad bowl: Some evidence from U.S. investments abroad," Journal of Financial Markets, Elsevier, vol. 11(3), pages 228-258, August.
    19. Katerina Simons & Joanna Stavins, 1998. "Has antitrust policy in banking become obsolete?," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 13-26.
    20. Evren Örs & Tara Rice, 2006. "Bank imputed interest rates: unbiased estimates of offered rates?," Working Paper Series WP-06-26, Federal Reserve Bank of Chicago.
    21. Douglas D. Evanoff & Evren Ors, 2002. "Local market consolidation and bank productive efficiency," Working Paper Series WP-02-25, Federal Reserve Bank of Chicago.
    22. Hendrickson, Jill M., 2000. "The impact of bank failures on local bank pricing decisions," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(3), pages 401-416.

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