Dynamic branching and interest rate competition of commercial banks: Evidence from Hungary |
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Institution: | 1. Associate Professor, College of Business, Department of Economics, James Madison University, 421 Bluestone Dr., MSC 0204, ZSH 442, Harrisonburg, VA 22807, United States;2. Associate Professor, Department of Economics, University of Wisconsin-Milwaukee, Box 413, Bolton Hall 806, Milwaukee, WI 53201, USA;3. Associate Professor, Department of Economics, Northeastern University, 301 Lake Hall, Boston, Massachusetts, 02115, USA;1. European Central Bank and CEPR, Germany;2. Goethe University Frankfurt and CEPR, Theodor-W.-Adorno-Platz 3, Frankfurt 60323, Germany;1. Columbia University, USA;2. University of Maryland, USA;3. Department of Economics, Columbia University, 420 W. 118th Street, New York, NY 10027, 212-854-1094, USA |
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Abstract: | I supplement previous models of bank competition by incorporating the endogenous branching choices of commercial banks. I apply a dynamic structural model of banks' branching and interest rate choices to a unique bank-level dataset on Hungarian commercial banks during 2004–2007. I find that banks charge a premium in interest rates for relative branch network dominance, and banks with relatively smaller networks are less likely to close branches. I present significant and robust estimates of branch setup costs and scrap values, and discuss the potential use of branching restrictions as regulatory tools to alter lending rates and consumer surplus. |
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