Robin A. Prager

Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry

This study examines the price effects of recent U.S. bank mergers that substantially increased local market concentration. Using the deposit interest rates that banks offer their customers as their price measure, the authors find that, over the 1991-94 time period, deposit rates offered by participants in substantial horizontal mergers and their local market rivals declined by a greater percentage than did deposit rates offered by banks not operating in markets in which such mergers took place. The authors interpret their results as evidence that these mergers led to increased market power. Copyright 1998 by Blackwell Publishing Ltd

The profitability of small single-market banks in an era of multi-market banking☆

This paper examines the relationship between the profitability of small single-market banks and the presence in the market of large banking organizations and banking organizations that operate primarily outside of the local banking market. We find that, in rural banking markets, the profitability of small single-market banks is significantly related to the presence of both large and small primarily-out-of-market banks. We also find that an increased presence of large or small primarily-out-of-market banks in rural banking markets reduces the positive effect of an increase in concentration on small single-market bank profits. This finding is consistent with theoretical predictions reported in the recent literature and has important implications for antitrust policy. In urban banking markets, we find little evidence of any relationship between the profitability of small single-market banks and the presence of large or primarily-out-of-market banks.

Multimarket Bank Pricing: An Empirical Investigation of Deposit Interest Rates

In recent years, the number of large, geographically diversified banking organizations operating in the U.S. has grown. Empirical studies have found that, at least in the case of deposit interest rates, many of these banks offer the same rate for a given type of account throughout a state, or, in some cases, a broader geographical area. This phenomenon of uniform pricing raises questions as to what competitive factors are relevant in explaining the deposit interest rates offered by large multimarket banks. In this paper, we provide empirical evidence regarding the determinants of the deposit interest rates offered by these banking organizations.

The Relaxation of Entry Barriers in the Banking Industry: An Empirical Investigation

Until recently, state laws restricted entry into local banking markets in many states by limiting both branching and multibank holding company (MBHC) operations. To the extent that these laws impeded entry into local banking markets, the removal or relaxation of the restrictions should have reduced barriers to entry, leading to more competitive price levels in the affected markets. This paper tests for such effects by examining the changes in deposit interest rates offered by banks operating in markets affected by liberalization of state banking law relative to the changes in deposit interest rates offered during the same time period by banks operating in markets not affected by such liberalization. We find evidence that liberalization of state laws restricting intrastate MBHC operations, interstate branches, and interstate MBHC operations caused deposit interest rates to become more competitive. We, however, find no evidence of such effects associated with the removal of restrictions on intrastate branching.

Community Bank Performance: How Important are Managers?

Community banks have long played an important role in the U.S. economy, providing loans and other financial services to households and small businesses within their local markets. In recent years, technological and legal developments, as well as changes in the business strategies of larger banks and non-bank financial service providers, have purportedly made it more difficult for community banks to attract and retain customers, and hence to survive. Indeed, the number of community banks and the shares of bank branches, deposits, banking assets, and small business loans that are held by community banks in the U.S. have all declined substantially over the past two decades. Nonetheless, many community banks have successfully adapted to their changing environment and have continued to thrive. This paper uses data from 1992 through 2011 to examine the relationships between community bank profitability and various characteristics of the banks and the local markets in which they operate. We divide these characteristics into two categories—those that are exogenous to the control of bank managers and those that reflect the decisions or actions of bank management. We find that variables from both categories significantly influence bank profitability. Statistical tests indicate that variables within managers’ control account for between 70 and 97 % of the total explanatory power of regression equations that explain variations in performance across community banks, which suggests that managers are extremely important to community bank performance. Copyright Springer Science+Business Media New York (outside the USA) 2016