DISTANCE,BANK HETEROGENEITY AND ENTRY IN LOCAL BANKING MARKETS*

We examine the determinants of entry into Italian local banking markets during the period 1991–2002 and build a simple model in which the probability of branching in a new market depends on the features of both the local market and the potential entrant. Econometric findings show that banks are more likely to expand into those markets that are closest to their pre‐entry locations. Large banks are also more able to cope with distance‐related entry costs than small banks. Finally, banks have become increasingly able to open branches in distant markets, due to the advent of information and communication technologies.     

Profits and "contestability" in highly concentrated banking markets

It has been suggested that monopolistically structured banking markets will perform competitively because banks have so many potential competitors and these markets are contestable. This hypothesis is tested on 2,861 banks in 1,286 markets. The tests compare rates of return of banks in markets with one, two, three and four banks with similar sized banks in metropolitan markets. The findings clearly reveal that rates of return in markets with few banks are significantly higher than those in markets with many competitors. These results question the validity of the theory of contestable markets in banking.     

Profits and "contestability": state-by-state evidence from banking markets

Contestability in local banking markets is tested using a structure-performance (S-P) model. OLS and TSLS tests using a 38 state sample of 5,396 banks in 1,474 markets reveal a positive concentration-profitability relationship. This implies that local banking markets are not contestable. However, tests for each state separately show that the S-P relationship exists only in approximately one-fifth of states. F-tests indicate that using a national pooled sample is inappropriate. The results suggest that market structure, including entry conditions, affect performance, consequently the theory of potential competition is more relevant than contestability theory. However, generalizations may be inaccurate.     

Market Structure after Horizontal Mergers: Evidence from the Banking Industry

Antitrust agencies use measures of market structure to evaluate the likely competitive effects of proposed mergers, but little is known about how measures of market structure change over time, particularly after consummation of mergers and acquisitions. This paper analyzes the changes in market structure 3 and 5 years after mergers in the US banking industry. Our analysis suggests that concentration decreases and the number of banks increases in banking markets where mergers resulted in high concentration levels. In markets where the level of concentration changed by a relatively large amount, our findings are more ambiguous, as the level of concentration decreases, but no effect is found on the number of competitors.     

国际银行控股集团参与金融衍生品的经验与启示

20世纪70年代以后,随着金融衍生品市场的迅速发展,许多著名的国际银行集团广泛参与其中,金融衍生品对这些国际银行控股集团的业务模式和发展战略演变产生了决定性的推动作用。分析与总结国际银行控股集团金融衍生品参与情况,有助于为我国机构投资者更好地参与衍生品市场提供有益的经验与启示。     

Do Large, Diversified Banking Organizations Have Competitive Advantages?

The issue of whether large, geographically diversifiedbanking organizations (LDBs) have net competitiveadvantages, over smaller banks, that benefit retailcustomers in individual local markets has importantimplications for antitrust policy and the viability ofsmaller banks. If LDBs possess net advantages, thenlarge banks may be considered an extra-competitiveforce in the antitrust analysis of proposed bankmergers and the future viability of small banks mightbe doubtful. The results of this paper, however, donot support the view that LDBs have net competitiveadvantages. LDBs generally had difficultymaintaining, much less increasing, their depositshares from 1990 to 1996 in markets in which they madeno acquisitions. The analysis also indicates thatmarket share changes experienced by LDBs vary with anumber of LDB and market characteristics.     

Innovation in the Retail Banking Industry: The Diffusion of Credit Scoring

We study technology diffusion in the retail banking industry. Our contribution to the empirical literature is twofold: Firstly, we explore technology diffusion in the financial sector, whose relevance has often been neglected; secondly we focus on credit scoring adoption, a relevant process innovation still under-explored. Estimating a set of duration models, we analyze the patterns of diffusion of this technology among Italian banks. We find that credit scoring is firstly introduced by large banks with broad branch networks, which can fully exploit scale economies. We present robust evidence that banks with large market shares operating in more concentrated markets are early adopters, providing a direct support of the Schumpeterian hypothesis that market power enhances innovation.The views expressed here are those of the authors and do not necessarily reflect those of the Bank of Italy.     

Analysis of Canadian and Mexican banking strategies in the U.S.

This article reviews regulations and commercial banking structures in Mexico, Canada and the U.S., and examines the comparative operations of Canadian and Mexican bank affiliates in the U.S. vis-a-vis each other and also with U.S. commercial banks of comparable size serving the same markets. Results obtained regarding significant differences in the operations of these banks appear to be consistent with the nascent FDI theory of multinational banking. International survey results regarding bank managers' perceptions and decision criteria suggest that this variable should also be incorporated in the evolving theory.     

Search Cost and Price Dispersion in Vertically Related Markets: The Case of Bank Loans and Deposits

Using data on marginal interest rates of loan and deposit products by Spanish banks, we find that the level of interest rates on loans (deposits) across geographic markets decrease (increase) with the number of banks in each market, and that the level of interest rates on loans increases with the level of interest rates of deposits. We also find that the dispersion of interest rates of both loans and deposits increase with the number of banks. This evidence is interpreted as evidence of customer’s search costs in retail banking, consistent with predictions from the Carlson and McAfee (J Polit Econ 91:480–493, 1983) model of market competition with search costs.     

Market share inequality,the HHI,and other measures of the firm-composition of a market

Data for individual markets suggest that the Herfindahl- Hirschman Index does not fully account for the inequality of market shares and the number of firms in a market. An empirical investigation is conducted to determine whether share inequality, number of firms, and major firm presence affect market profit rates independent of the HHI. The analysis controls for efficiency, among other things. Test results based on 1,684 banking markets during 1990–1992 indicate that the HHI, market share inequality, and the importance of major firms are positively related and the number of firms is negatively related to profit rates. Results on several other variables also suggest that market imperfections exist in local banking markets.     

Multimarket Contact in Banking

According to linked oligopoly theory, the anticipated effect of multimarket contact is reduced competition. Specifically, the theory predicts that contact lowers competition by reducing the benefit of aggressive action in any single market by providing rivals with the opportunity to retaliate in multiple common markets. The results of this paper are consistent with the theory. In banking, contact is positively related to profitability. Although the economic impact of this relationship is unimportant for most institutions, the relationship is meaningful for the small group of banks most heavily exposed to contact. This finding suggests that the importance of contact may rise as consolidation of the banking industry continues.     

Strategic Complementarities in Bank Branching Decisions*

I study how complementarities between rival banks’ branching decisions impacts banking deregulation. I use an instrumental variables approach to separately identify a bank’s strategic response to rivals’ branching decisions from common market factors. The results indicate that some bank types are more likely to open additional branches if their rivals do. This has important implications for expansion and merger policies. These are explored using a model of consumer demand for bank services and bank branch network choices. I find that strategic complementarities in branching decisions augment the effects of a merger or expansion, leading many banking markets to become over-branched.     

Competition in Local Markets: Some Evidence from the Spanish Retail Banking Market

Using the entry threshold concept developed by Bresnahan and Reiss (Brookings Pap Econ Act 3:833–882, 1987), this paper examines how competitive conditions vary in independent local banking markets when the number of depository branches grows. With data on the Spanish retail banking sector in 2003, I estimate a discrete choice model to calculate the entry thresholds. The empirical evidence suggests that the entry of a new branch implies competition on a local level. Local branches seem to have some scope for changing prices fixed on national and regional levels. Moreover, the entry of new branches increases the competition among branches with instruments other than price (e.g., advertising, location, and promotion).      

Location and competition in retail banking

We investigate the impact of banking deregulation during the 1990s on consumer welfare. We estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance traveled. This is important given the substantial changes in banks' branch networks observed in the data. Our model indicates that cross-price elasticities between banks whose branches are close to consumers (‘close’ banks) are larger than those between ‘far’ banks and more than double the cross-price elasticity of ‘close’ banks with respect to ‘far’ banks. We distinguish between thrifts and other banks and find that within-thrift competitive effects are stronger than within-bank effects or those between thrifts and banks. We use our estimates to predict the effect of changes in market structure on consumer welfare following the branching deregulation of the Riegle–Neal Act of 1994. Our results indicate that the median household gained around $60 per year from the changes. Approximately two thirds of the gains come from within-market changes in market structure. The gains were greater in markets with high initial numbers of banks than elsewhere.     

Determinants of US multinational banking performance in the Asia pacific region: An eclectic approach

The Asia Pacific region has provided the fastest growing and the most profitable overseas markets for US multinational banks (MNBs) since 1975. In the region, US MNBs remain the dominant banking power despite a recent contraction in their relative market share. This paper discusses major characteristics of US MNB activities in the region and identifies empirically major determinants of MNB performance in the two key countries of the region (Singapore and South Korea) using an eclectic approach.     

A note on the market share-profitability relationship

This study extends earlier empirical work to determine whether there is a breakpoint or critical level in the frequently observed relationship between firm market share and profit rate. The analysis focuses on the banking industry and uses a sample of 10,690 firms located in 2165 different local geographic markets. Though the results apply directly only to banking, the similarity of findings on various other industrial organization topics in banking and the industrial sector suggests that the results of this study will be broadly relevant to the industrial sector.The main findings of the study are that (1) in general, firm market share is directly related to profitability; (2) the firm market share variable remains positive and significant when controlling for market concentration either with concentration as a separate independent variable or by conducting tests with subsamples of firms that are in markets with similar concentration ratios; and (3) while there is no sharp breakpoint in the market share-profitability relationship, the results indicate that profit rates of firms increase at a decreasing rate up to a share of about 55 percent. Since numerous studies have found that economies of scale are not particularly important in banking, it appears that the observed relationship is not due to greater efficiency with larger shares.     

Is there a liability of foreignness in global banking? An empirical test of banks' X‐efficiency

When a company operates outside of its home country, it may suffer a ‘liability of foreignness.’ Does this a priori theoretical expectation hold in the global banking industry? Banks increasingly compete outside of their home countries, and operating environments often differ sharply across countries, both in terms of financial markets and credit risk. In this paper, we report the results of an empirical test of the liability of foreignness in the global banking industry, using Fitch–IBCA BankScope data for the period 1989–96. Our findings strongly support the liability of foreignness hypothesis. Further, the data show some evidence that the X‐efficiency of a foreign‐owned bank is strongly influenced by the competitiveness of its home country and the host country in which it operates. Lastly, we find that in some environments U.S.‐owned banks are more X‐efficient than other foreign‐owned banks in some environments, but less X‐efficient in others. Copyright © 2002 John Wiley & Sons, Ltd.     

基于DEA 模型的我国上市商业银行竞争力分析

金融业竞争的日益市场化与国际化以及基于技术创新的金融业快速发展,使得我国竞争力本来就不强的银行业深受冲击。因此,我国银行业必须不断提升自主创新能力,提高市场竞争力,以便构筑起可持续发展的能力。本文试图用数据包络方法(DEA) 对我国16 家上市商业银行竞争力进行实证分析,期望能够对我国商业银行竞争力的提升有一定的借鉴意义。     

Determinants of Entry and Profits in Local Banking Markets

This paper estimates a two equation model of market entry and profits, utilizing data on entry into over 2,000 banking markets over the period 1977--88. The entry equations measure whether entry depends on incumbent firms' profits and other market attributes that reflect the long-term attractiveness of markets for entry. Market profits, assumed to follow a partial-adjustment process, are affected by entry directly and indirectly through market structure. The model also corrects for an unavoidable source of error in market-level profits for the banking industry. The estimates suggest that a competitive process is at work in banking markets that limits the ability of supra-normal profits to persist. Entry is more likely in markets that have high profits, consistent with previous empirical results that market structure adjusts more quickly when profits are supra-normal. Population and population growth are also strong determinants of entry. Entry, in turn, reduces profits in rural markets.     

浅谈私人银行业务在我国内地商业银行的发展

私人银行业务是指以商业银行为主的金融机构面向社会富裕人士提供的以财富管理为中心的一揽子专业化的高层次金融服务.而随着中国经济金融的全面开放和内地富裕群体的日益壮大,外资银行纷纷企图在这一利润丰厚的财富蛋糕上沾点甜头.这项涵盖银行、保险、证券、信托、遗产安排、艺术品收藏与拍卖等领域的多元化服务,将成为中资银行丰厚利润的新...