The competitive implications of multimarket bank branching

By Timothy H. Hannan, R. Prager. 2001

152 citations recorded by the source corpus.

Abstract Retail banking markets have traditionally been viewed as locally limited. However, recent studies have found evidence that large multimarket banking organizations tend to offer uniform interest rates for retail deposit accounts throughout the area that they serve, at least within a given state. This uniform pricing phenomenon raises questions about the continued relevance of the concept of local banking markets for both research and antitrust purposes. We address this issue by employing a model designed to explain the pricing behavior of single-market banks that face competition from multimarket banks. Empirical results are found to be consistent with the many implications of the model. We find that even with multimarket banks present in the market, local market concentration influences the pricing behavior of single-market banks; however, this relationship weakens as the market share of multimarket banks grows. We also find that, on average, multimarket banks offer lower deposit interest rates than do single-market banks operating in the same market, and, in most cases, greater multimarket bank presence is associated with lower deposit interest rates offered by single-market banks.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/096c9cff422555be19a54a2a5d61b84204916f92

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Citations in the corpus

A Comprehensive Review of Multimarket Competition Research (2013, background): “In two banking studies, Hannan (2006) and Hannan and Prager (2004) suggested that if the trend toward multimarket banking continues, the rationale of using local markets in antitrust analyses of the banking industry will lose much of its force.”
Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation (2009, unknown): “Empirical work in Hannan and Prager (2004) is motivated by a model similar to Barros (1999) which assumes that LMBs’ deposit rates are exogenous but uniform across local markets.”
Market Size, Service Quality, and Competition in Banking (2007, background): “Also, Hannan and Prager (2004) find higher bank prices (lower deposit rates) in larger markets, while Hannan (2001, 2002) finds that large banks charge higher fees, on average, than do small banks.”
Competition and regulation in the banking sector: A review of the empirical evidence on the sources of bank rents (2007, background): “Hannan and Prager (2004) explore the competitive impact of multi-market banks on local deposit conditions, using US data for 1996 and 1999.”