What we can expect from interstate banking

Though interstate banking has been legislatively prohibited, commercial banks have circumvented these restrictions. This has led to proposals to permit interstate banking. In this paper we examine the performance of one set of banks which has been allowed to operate on an interstate basis, namely, those grandfathered by the Bank Holding Company Act of 1956. The data and statistical tests confirm that the grandfathered BHCs have experienced a statistically significant reduction in the share of state deposits and homogenization in their profitability and portfolio composition compared with their peers in the same states over the 1960–1983 period. These results suggest that the ability to operate banks interstate has provided little in the way of long-run competitive advantages for those BHCs with this privilege. It is unlikely that interstate branching will result in the large money center banks dominating local and regional banking markets.     

Does Credit Competition Affect Small‐Firm Finance?

While relaxation of geographical restrictions on bank expansion permitted banking organizations to expand across state lines, it allowed states to erect barriers to branch expansion. These differences in states' branching restrictions affect credit supply. In states more open to branching, small firms borrow at interest rates 80 to 100 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply, we find no effect of variation in state restrictions on branching on the amount that small firms borrow.     

The competitive implications of multimarket bank branching

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.     

Entry Decisions and Adverse Selection: An Empirical Analysis of Local Credit Markets

During the last decades there has been a widespread relaxation of legal entry barriers into the banking industry, with potential benefits for financial integration and competition. Obstacles to banks geographical and business expansion have been removed and branching has been substantially liberalized. This paper analyses the determinants of entry decisions into local credit markets using a unique data set before and after deregulation of the Italian banking industry. We estimate an entry model à la Poisson and find evidence that spreads between loan and deposit rates drive entry only for newly chartered banks, but does not affect the decision to open branches of banks operating in other markets. Branching by outside banks is instead positively correlated with business opportunities in the provision of financial services which do not require the acquisition of substantial proprietary information. Both these results are consistent with the hypothesis that in credit markets incumbents have an informational advantage over new entrants.     

Changes in Interstate Banking Laws: The Impact on Shareholder Wealth

This study examines the impact on shareholder wealth of changes in interstate banking laws. The research demonstrates that changes in state statutes which allow interstate banking have a positive impact on the stock prices of regional banking organizations and a negative impact on the stock prices of money center banks. Interstate banking statutes initially exclude those states in which the money center banks are headquartered. The findings provide evidence that, by excluding money center banks from expansion across state lines, the competition from the regional banks may have an adverse competitive effect on the money center banks.     

Interest margins and bank regulation in Central America and the Caribbean

This paper examines empirically the determinants of bank interest margins in Central America and the Caribbean over the period 1998–2014. A particular focus is set on the impact of differences in the regulatory environment and market structure across countries in explaining the interest margins of individual banks. Our results suggest that bank market power, operating costs, credit risk, and liquid asset holdings increase the margin between loan and deposit rates, while increased income diversification and GDP growth are associated with lower loan-deposit spreads. When considering information on banking regulation, we find strong evidence to support our main hypothesis that improvements in market quality and liberalization have a significant effect on interest margins. More specifically, reductions in entry requirements to banking, higher involvement of foreign banks, and increased financial statement transparency are associated with significant reductions in interest margins.     

Branching,lending and competition in Italian banking

With the liberalization of legal barriers to the opening of bank branches in 1990, both market structure and competitive conditions in Italy changed profoundly as banks expanded their branching networks. This paper provides novel empirical evidence on how changes of the branch network structure at the province level affect the performance and lending activity of banks across the period 1993–2011. In particular, we adopt two modes of analysis. The first focuses on the impact of diversification strategies on performance, lending and funding strategies at the province level. The second one examines how the increase of big banks' local presence affects single-market bank performance and lending strategies. Our results show that geographical diversification strategies can reduce performance, the adjusted Lerner Index of banks and lending activities, but increase the Lerner Index in deposit markets. Furthermore, we find that the expansion of branches by large-medium sized banks in concentrated markets can reduce the Lerner Index for the deposit market and the amount of loans offered by single-market banks.     

Geographic Deregulation and Competition in the U.S. Banking Industry

We examine the effects of geographic deregulation on state‐level competition in U.S. banking markets over the period 1976‐2005. The empirical results confirm that the U.S. banks in general operated under monopolistic competition during the period examined. After partitioning the sample based on bank size we find that the market competition for large banks in Delaware, Oregon, and Rhode Island can be characterized as monopolistic while small banks in Arizona and Massachusetts seem to have operated under the conditions of perfect competition. The removal of geographic restrictions appears to have very limited and non‐uniform effect on state‐level competitive conduct. There is some evidence that the U.S. banking industry might have actually experienced a less competitive behavior in recent years due to increased market power of larger banks.     

The economic effects of foreign bank presence: Evidence from the Philippines

This study examines the economic effects of the liberalization of foreign bank entry in the Philippines from 1990 to 2006. The findings provide strong evidence on the dominance of competition effects from foreign bank presence which lead to the reduction in the profitability and overhead costs of domestic commercial banks. These findings, which reveal that both the actual market penetration and mere presence of foreign banks seem to exert competitive pressure to domestic banks, imply that foreign banks may serve as an effective competitive force, reducing the excess profits earned by domestic banks and compelling domestic banks to update their production technologies and techniques to improve their cost efficiency.From a policy perspective, the findings on competition effects of foreign banks in the domestic banking system justify the liberalization of foreign bank entry in the Philippines. The main findings demonstrate that the goal of banking liberalization in transforming domestic banks to be more competitive and efficient works considerably well in the case of the Philippines. Aside from the policy of easing the entry of foreign banks, bank-specific conditions can have significant impact on the performance of domestic banks. Therefore, a sustained improvement in the efficiency of domestic commercial banks requires not only liberalizing the entry of foreign banks, but also on continued strengthening of domestic prudential regulation and supervision on the commercial banking system.     

对稳步推进我国利率市场化改革的探讨

我国利率市场化改革已在货币市场、债券市场和信贷市场取得很大进展,在促进金融市场发育、改善商业银行内部管理、实现金融支持经济发展、提高商业银行产品定价能力等方面发挥了积极作用。推进利率市场化改革,放开银行业存贷款利率,将面临利率水平频繁波动、商业银行收益渠道变化、中小金融机构经营环境改变、中央银行调控手段改进等相关问题。为此,商业银行应建立利率风险控制机制、实施经营收益多元化策略;中央银行则应改革货币政策调控方式,加强对信贷市场的金融监管,以循序渐进的方式稳步推进利率市场化改革。     

The interstate banking and branching efficiency act of 1994: A wealth event for acquisition targets

The Interstate Banking and Branching Efficiency Act (IBBEA) represented a significant step in the deregulation of interstate banking and branching. The IBBEA's passage had a positive wealth effect on a sample of large Bank Holding Companies (BHCs). Cross-sectional tests of abnormal returns reveal that BHCs having characteristics associated with acquisition targets and BHCs headquartered in states that prohibited interstate branching experienced significantly higher returns. Collectively, the evidence suggests that investors anticipated that the IBBEA would provide for increased corporate control activities among banks and that a large portion of the BHC gains stems from the relaxation of interstate branching restrictions.     

关于我国利率和利率传导关系的思考

当前我国银行体系利率大致可分为货币市场利率和信贷市场利率,其中由央行指定的利率主要有存贷款基准利率、再贴现率等。在货币市场上,隔夜同业拆借利率具有基准利率的地位。在信贷市场上,在特定时期,保持适当的存贷款利差具有积极意义。由于一些阻碍信贷市场与货币市场统一的制度安排的存在,这两个市场间的利率传导呈现出一定的不对称性。为推进利率市场化,进一步完善我国利率体系,下一步应逐步弥合市场分割,加强货币市场基准利率建设,培育商业银行利率定价能力。     

(Interstate) Banking and (interstate) trade: Does real integration follow financial integration?

We conjecture that banks present in two regions charge the appropriate risk premiums for trade-related projects between these markets, whereas higher rates are charged for projects involving shipments to markets where they are absent. These differences affect regional trade flows. US interstate banking deregulation serves as a natural experiment to test our model's implication with the Commodity Flow Survey data. Difference-in-differences estimates suggest that the trade share of state-pairs that allowed pairwise interstate entry increased by 14% over 10 years relative to non-integrated state-pairs. Instrumental variables estimates suggest that an actual increase in bank integration from zero to 2.28% (the mean) increases trade 17% to 25%.     

Trade credit and the joint effects of supplier and customer financial characteristics

We examine how access to bank credit affects trade credit in the supplier–customer relationships of U.S. public firms. For identification, we use exogenous liquidity shocks to supplier firms in the form of staggered changes to interstate bank branching laws. Using a variety of tests, we show that supplier firms with greater access to banking liquidity offer more trade credit to their customers. We also show that when bank branching restrictions are relaxed in the supplier’s state, the supplier–customer relationship is more likely to survive.     

The effects of reform on China’s bank structure and performance

This paper investigates the relationship between market structure and performance in China’s banking system from 1985 to 2002, a period when this sector was subject to gradual but notable reform. Using panel data estimation techniques, both the market-power and efficient-structure hypotheses are tested. In addition, the model is extended to consider issues such as the impact of bank size/ownership and whether the big four banks enjoy a “quiet life”. On average, X-efficiency declined significantly and most banks were operating below scale efficient levels. Estimation of the structure–performance models lends some support to the relative market-power hypothesis in the early period. The reforms had little impact on the structure of China’s banking sector, though the “joint stock” banks became relatively more X-efficient. There was no evidence to support the quiet-life hypothesis, probably because strict interest rate controls prevented the state banks from earning monopoly profits. Thus the ongoing liberalisation of interest rates should be accompanied by reduced concentration. Overall, to improve competitive structure, new policies should be directed at encouraging market entry and increasing the market share of the most efficient banks.     

The Diversification and Cost Effects of Interstate Banking

This study examines recent interstate bank geographic diversification inside the United States. More than 80 holding companies that gradually evolved into interstate banking companies were tested for significant linkages to risk and efficiency indicators. The study finds that while geographic expansion frequently is associated with increases in risk, when banking firms were grouped by threshold levels of geographic diversification more highly diversified interstate banks appear to achieve reductions in risk exposure and operating costs. The study's results suggest the spread of interstate banking may change the industry's risk and cost profile significantly with profound implications for the future of the deposit insurance fund.     

Banking market conditions and deposit interest rates

This paper shows that the impact of market structure on bank deposit interest rates is complex. Both market size structure and multimarket bank presence have independent effects on rates. There is evidence that mid-size banks were more aggressive competitors than other banks, but that the effect of market structure on deposit rates has evolved over time, with mega-banks recently becoming more aggressive competitors. This may be related to the growth of mega-banks in many markets. These findings have implications for existing theories of deposit pricing and, by extension, antitrust policy in banking.     

Protectionism and international banking : Sectorial efficiency, competitive structure and National policy

This paper deals with barriers to trade in services. More specifically, the paper deals with competition and its absence in the provision of international intermediation services by banks. Section 2 of the paper examines the substitutability of international trade and FDI (foreign direct investment) in the services sector as a basis for international competition. It also considers the overlap between commercial policy measures and regulations governing the entry and operations of foreign affiliates. Section 3 describes the types of restrictions imposed on foreign banks and evaluates their effects. Existing practices in some countries are outlined in the fourth section. The countries are the U.S., the U.K., Switzerland, Australia, Brazil and Taiwan. Section 5 evaluates competitive conditions in offshore banking centers, and compares them with conditions in onshore markets. The last section evaluates the costs and the benefits of an ‘open’ (free-trade) banking system. Such a system will tend to improve world welfare as well as the welfare of those countries who have a comparative advantage in international banking. The results are not clear with regard to the countries who have a comparative disadvantage in banking.     

The Puzzle Between Banking Competition and Profitability can be Solved: International Evidence from Bank-Level Data

This article applies the GMM techniques for dynamic panels using bank-level data for 61 countries over the period 1992 to 2006 to re-investigate the impact of banking competition on profitability. The extant literature, which ignores influence factors, presents ambiguity towards the impact of banking competition on profitability. However, when the effects of a broad range of factors are taken into consideration, five conclusions are reached. First, along with the change in market structure, a higher degree of activity restriction enhances banks’ profits. Second, restrictions on the rights of commercial banks to engage in securities, insurance, and other non-banking-related business, along with restrictions on the entry of foreign banks into these markets, weaken the positive relationship between banking competition and profits. Third, a higher degree of efficiency within the judicial system and the added protection afforded to investors may weaken or else have no impact on the positive relationship. Fourth, the positive relationship may weaken in countries having a sound financial system or high income per capita. Finally, greater competitive pressure facing banks may weaken or eliminate the impact of banking competition on profit.     

Geographic diversification in banking,market share changes,and the viability of small independent banks

The prospect of unlimited nationwide banking raises a question about the viability of small independent banks in competition with large, geographically diversified banking organizations. This study addresses the issue of small bank viability by focusing on the relative performance of independent banks and bank holding company subsidiaries in a regime of intrastate banking, where performance is measured by the cumulative change in a bank's local market share over time. Two regression equations of the same general form are estimated using the same sample of independent and affiliated banks, albeit for different time periods to distinguish between the short-term and long-term effects of affiliation. Regression results indicate that affiliation with a geographically diversified bank holding company generally provides no significant long-term competitive advantage (in terms of market share accumulation) for holding company subsidiaries over independent banks. The only exception is a modest benefit afforded to banks with relatively small pre-acquisition market shares that are acquired by larger bank holding companies as initial entry vehicles into new markets.An earlier version of this article was presented at the 1988 meetings of the Southern Economic Association, San Antonio, Texas.