Nationwide Branching and Its Impact on Market Structure, Quality and Bank Performance
Nationwide Branching and Its Impact on Market Structure, Quality and Bank Performance

Author: Astrid Andrea Dick

Publisher:

Published: 2003

Total Pages: 43

ISBN-13:

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Based on a sample for 1993-1999, this paper examines the effects of nationwide branching, following the Riegle-Neal Act, on various aspects of banking markets and bank service and perfomance. While concentration at the regional level has increased dramatically, deregulation has left almost intact the market structure of urban markets, which have between two to three dominant firms - controlling over half of a market's deposits - in 1999 just as they did in 1993. A significant portion of the observed increase in bank quality can be traced to the implementation of nationwide branching. By allowing banks to open branches in any state, the new regime has permitted consumers to enjoy greater networks, free of fees, throughout large geographic regions. Consistent with an increase in service quality, costs and service fees increase. Credit risk increases as greater geographic diversification might provide a hedge against greater risk-return choices. Coherent with these findings and an increase in lending competition and profit efficiency, spreads fall and profits are unaffected.

Competition Policy for Modern Banks
Competition Policy for Modern Banks

Author: Mr.Lev Ratnovski

Publisher: International Monetary Fund

Published: 2013-05-23

Total Pages: 20

ISBN-13: 1484366174

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Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.

U.S. Bank Market Structure
U.S. Bank Market Structure

Author: David G. McMillan

Publisher:

Published: 2015

Total Pages: 48

ISBN-13:

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This paper documents the recent changing structure of the US bank market, as it has become more deregulated and specifically asks how this affects bank behaviour as it relates to profits and risk. Using a variety of approaches, such as the HHI and Lerner measures, we document a general increase in concentration and market power, at least until the recent crisis period. Importantly, we then consider whether these changes, or whether bank specific and general economic conditions have a greater impact on bank profit and risk. Results support the view that changes to market structure (especially market power) while positively impacting profit and persistence do not lead to increased risk. However, market share (or bank size) does, albeit not for the largest banks. Results also support the view that banks may increase some elements of risk as well as profit during an economic expansion. Notwithstanding, this an overriding feature of the results is differences in the conditioning factors across size strata and time. This leads to the conclusion that there is no simple relationship between market structure and competition and risk and that benign economic condition play a key role in reducing competition and possibly increasing risk. The key implication of the results is the need for more nuanced policy-making with regard to bank size, performance and economic conditions.

Asymmetric Information and the Market Structure of the Banking Industry
Asymmetric Information and the Market Structure of the Banking Industry

Author: Mr.Giovanni Dell'Ariccia

Publisher: International Monetary Fund

Published: 1998-06-01

Total Pages: 32

ISBN-13: 145195154X

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The paper analyzes the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. All lenders face uncertainty with regard to borrowers’ creditworthiness, but, in the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. These informational asymmetries are an important determinant of the industry structure and may represent a barrier to entry for new banks. The paper shows that, in contrast with traditional models of horizontal differentiation, the steady-state equilibrium is characterized by a finite number of banks even in the absence of fixed costs.

A New Measure of Competition in the Financial Industry
A New Measure of Competition in the Financial Industry

Author: Jacob Bikker

Publisher: Routledge

Published: 2014-08-27

Total Pages: 225

ISBN-13: 1136013202

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The 2008 credit crisis started with the failure of one large bank: Lehman Brothers. Since then the focus of both politicians and regulators has been on stabilising the economy and preventing future financial instability. At this juncture, we are at the last stage of future-proofing the financial sector by raising capital requirements and tightening financial regulation. Now the policy agenda needs to concentrate on transforming the banking sector into an engine for growth. Reviving competition in the banking sector after the state interventions of the past years is a key step in this process. This book introduces and explains a relatively new concept in competition measurement: the performance-conduct-structure (PCS) indicator. The key idea behind this measure is that a firm’s efficiency is more highly rewarded in terms of market share and profit, the stronger competitive pressure is. The book begins by explaining the financial market’s fundamental obstacles to competition presenting a brief survey of the complex relationship between financial stability and competition. The theoretical contributions of Hay and Liu and Boone provide the theoretical underpinning for the PCS indicator, while its application to banking and insurance illustrates its empirical qualities. Finally, this book presents a systematic comparison between the results of this approach and (all) existing methods as applied to 46 countries, over the same sample period. This book presents a comprehensive overview of the knowns and unknowns of financial sector competition for commercial and central bankers, policy-makers, supervisors and academics alike.