Harming depositors and helping borrowers: the disparate impact of bank consolidation

Kwangwoo Park and George Pennacchi

No 704, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: A model of multimarket spatial competition is developed where small, single-market banks compete with large, multimarket banks (LMBs) for retail loans and deposits. Consistent with empirical evidence, LMBs are assumed to have different operating costs, set retail interest rates that are uniform across markets, and have access to wholesale funding. If LMBs have significant funding advantages that offset any loan operating cost disadvantages, then market-extension mergers by LMBs promote loan competition, especially in concentrated markets. However, such mergers reduce retail deposit competition, especially in less concentrated markets. Prior empirical research and our own analysis of retail deposit rates support the model?s predictions.

Keywords: Bank; mergers (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-ban, nep-com and nep-ure
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation (2009)
Working Paper: Harming depositors and helping borrowers: the disparate impact of bank consolidation (2004)
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DOI: 10.26509/frbc-wp-200704

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