What drives the persistent competitiveness of small banks?

William F. Bassett and Thomas F. Brady
Additional contact information
William F. Bassett: https://www.federalreserve.gov/econres/william-f-bassett.htm

No 2002-28, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Several trends in the financial industry could have weakened the competitiveness of small banks in recent years. Despite those challenges, small banks have grown more rapidly than larger banks over the period from 1985 to 2001, and their profitability has been sustained at high levels. However, small banks have needed to increase the interest rates offered on deposit accounts in order to attract progressively more deposit funding. In this paper, we provide empirical evidence that this increased interest cost primarily reflects the high rate of return that small banks were able to earn on their assets. Moreover, we show with an arbitrage model that the decline in the real value of deposit insurance has only a small effect on deposit rates as long as bank failure rates are in the low range of recent years.

Keywords: Banks and banking; Bank mergers (search for similar items in EconPapers)
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2002/200228/200228abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2002/200228/200228pap.pdf (application/pdf)

Related works:
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:fip:fedgfe:2002-28

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().