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Rising Bank Concentration

P. Dean Corbae () and Pablo D'Erasmo ()

No 594, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising concentration occurs along a transition path between two steady states after branching costs decline.

Keywords: Imperfect competition; Banking industry dynamics; Bank concentration (search for similar items in EconPapers)
JEL-codes: E44 L11 G21 L13 (search for similar items in EconPapers)
Pages: 41
Date: 2020-03-02
New Economics Papers: this item is included in nep-ban, nep-com and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:87574

DOI: 10.21034/sr.594

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