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Conference Paper
Harming depositors and helping borrowers: the disparate impact of bank consolidation
There is growing evidence showing that large and small banks differ in how they service retail customers. Large, multi-market banks (LMBs) have more standardized operations and set interest rates that are uniform across local markets, while small banks have greater autonomy to set rates according to local market conditions. LMBs also differ from smaller banks by having relatively greater access to wholesale funding. This paper presents a model of spatial competition where small, single-market banks compete with LMBs. It shows that market-extension mergers by LMBs promote competition in ...
Working Paper
Harming depositors and helping borrowers: the disparate impact of bank consolidation
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 ...