Entry restrictions, industry evolution and dynamic efficiency: evidence from commercial banking
This paper shows that bank performance improves significantly after restrictions on bank expansion are lifted. We find that profits increase and loan quality improves 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 increase market share 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 limited support for the hypothesis that more competitive banking markets following deregulation better discipline bank managers, thereby improving bank performance.
|Date of creation:||1996|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995.
"The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
- Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Berger, Allen N & Hannan, Timothy H, 1989.
"The Price-Concentration Relationship in Banking,"
The Review of Economics and Statistics,
MIT Press, vol. 71(2), pages 291-99, May.
- Allen N. Berger & Timothy H. Hannan, 1987. "The price-concentration relationship in banking," Research Papers in Banking and Financial Economics 100, Board of Governors of the Federal Reserve System (U.S.).
- 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.).
- R. Glenn Hubbard & Darius Palia, 1994.
"Executive Pay and Performance: Evidence from the U.S. Banking Industry,"
NBER Working Papers
4704, National Bureau of Economic Research, Inc.
- Hubbard, R. Glenn & Palia, Darius, 1995. "Executive pay and performance Evidence from the U.S. banking industry," Journal of Financial Economics, Elsevier, vol. 39(1), pages 105-130, September.
- Paul S. Calem, 1994. "The impact of geographic deregulation on small banks," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 17-31.
- 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.
- 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.
- 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.
- 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).
- Stephen A. Rhoades, 1986. "The operating performance of acquired firms in banking before and after acquisition," Staff Studies 149, Board of Governors of the Federal Reserve System (U.S.).
- Flannery, Mark J., 1984.
"The social costs of unit banking restrictions,"
Journal of Monetary Economics,
Elsevier, vol. 13(2), pages 237-249, March.
- 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.
- Douglas D. Evanoff & Diana L. Fortier, 1987. "Reevaluation of the structure-conduct-performance paradigm in banking," Staff Memoranda 87-9, Federal Reserve Bank of Chicago.
- Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August.
- Warren G. Lavey, 1974. "Transportation/Communication Considerations in the Location of Headquarters for Multi-Establishment Manufacturing Firms," NBER Working Papers 0052, National Bureau of Economic Research, Inc.
- Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 221-249, April.
When requesting a correction, please mention this item's handle: RePEc:fip:fednrp:9630. 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: (Amy Farber)
If references are entirely missing, you can add them using this form.