Bank Consolidation and Consumer Loan Interest Rates

Charles Kahn, George Pennacchi and Ben Sopranzetti

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: The recent wave of bank mergers has raised concern with its effect on competition. This paper examines the influence of concentration and merger activity on consumer loan interest rates. It uses Bank Rate Monitor, Inc. survey data on loan rates quoted weekly by large commercial banks in ten major U.S. cities during the 1989 to 1997 period. The pricing behavior of banks is analyzed for two types of loans: new automobile loans and unsecured personal loans.

Market concentration is found to have a positive and significant impact on the level of personal loans, but not automobile loans. Consistent with the exercise of market power, we find that personal loan rates rise in markets following a significant merger. However, this is a significant decrease in automobile loan rates charged by banks participating in within-market mergers, a finding consistent with economies of scale in the origination of automobile loans.

The paper also tests for the existence of leader-follower relationships in loan pricing and finds that it is more widespread in markets for automobile loans. Interest rates on both types of loans respond asymmetrically to a change in equivalent maturity Treasury security rates, being more sensitive to a rise than a fall. In addition, personal loan rates are less responsive in more concentrated markets.

Date: 2001-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://fic.wharton.upenn.edu/fic/papers/01/0114.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://fic.wharton.upenn.edu/fic/papers/01/0114.pdf [301 Moved Permanently]--> https://wifpr.wharton.upenn.edu/fic/papers/01/0114.pdf)

Related works:
Working Paper: Bank consolidation and consumer loan interest rates (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wop:pennin:01-14

Access Statistics for this paper

More papers in Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().