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Bank Performance: Market Power or Efficient Structure?

Yongil Jean and Stephen Miller ()
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Yongil Jean: Central Michigan University

No 2005-23, Working papers from University of Connecticut, Department of Economics

Abstract: Regulatory change not seen since the Great Depression swept the U.S. banking industry beginning in the early 1980s, culminating with the Interstate Banking and Branching Efficiency Act of 1994. Significant consolidations have occurred in the banking industry. This paper considers the market-power versus the efficient-structure theories of the positive correlation between banking concentration and performance on a state-by-state basis. Temporal causality tests imply that bank concentration leads bank profitability, supporting the market-power, rather than the efficient-structure, theory of that positive correlation. Our finding suggests that bank regulators, by focusing on local banking markets, missed the initial stages of an important structural change at the state level.

Keywords: commercial banks; concentration; profitability (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-fin and nep-mac
Date: 2005-06
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