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This paper analyzes the evolution of competition in the Mexican banking system in the period 1993-2005, a period of deregulation, liberalization and consolidation of the sector. For this purpose we use two indicators of competitio...
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This paper analyzes the evolution of competition in the Mexican banking system in the period 1993-2005, a period of deregulation, liberalization and consolidation of the sector. For this purpose we use two indicators of competition from the theory of industrial organization (the Lerner index and the Panzar and Rosse's H-statistic). The empirical evidence does not permit us to reject the existence of monopolistic competition. The Lerner index shows a decrease in competitive rivalry in the deposit market and an increase in the loan market, a cross subsidization strategy being observed. The results obtained call into question the effectiveness of the measures implemented hitherto, aimed at increasing the competition of the Mexican banking system.
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This paper tests the effects of banking deregulation on the cash policies of nonbanking firms in the United States. We document a significant and negative relation between intrastate banking deregulation and corporate cash holding...
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This paper tests the effects of banking deregulation on the cash policies of nonbanking firms in the United States. We document a significant and negative relation between intrastate banking deregulation and corporate cash holdings. We show that the negative relation is driven by financially constrained firms, especially by constrained firms with low hedging needs. Further, we construct indexes measuring the intensity of bank consolidation in local markets. We find that the intensity of in-market bank mergers is negatively related to corporate cash holdings. However, in-market bank mergers in highly concentrated markets tend to be positively related to corporate cash holdings.
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We investigate the impact of banking deregulation during the 1990s on consumer welfare. We estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance travele...
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We investigate the impact of banking deregulation during the 1990s on consumer welfare. We estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance traveled. This is important given the substantial changes in banks' branch networks observed in the data. Our model indicates that cross-price elasticities between banks whose branches are close to consumers ('close' banks) are larger than those between 'far' banks and more than double the cross-price elasticity of'dose' banks with respect to 'far' banks. We distinguish between thrifts and other banks and find that within-thrift competitive effects are stronger than within-bank effects or those between thrifts and banks. We use our estimates to predict the effect of changes in market structure on consumer welfare following the branching deregulation of the Riegle-Neal Act of 1994. Our results indicate that the median household gained around $60 per year from the changes. Approximately two thirds of the gains come from within-market changes in market structure. The gains were greater in markets with high initial numbers of banks than elsewhere.
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Rising wages in the finance industry have been a source of debate and are usually linked to financial deregulations. Exploiting the cross-state and over-time variation in the timing of US bank deregulations, this article investiga...
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Rising wages in the finance industry have been a source of debate and are usually linked to financial deregulations. Exploiting the cross-state and over-time variation in the timing of US bank deregulations, this article investigates the causal impact of each type of deregulation on the relative wages in the finance industry. I document that relative wages in finance began to rise in the early 1980s in almost all states, including those that deregulated before 1970 and those that deregulated in the 1990s. Consistently, after controlling for aggregate macro shocks that affected all states, there is no evidence that relative finance wages increased more following any type of deregulation. If anything, I find a negative impact of bank branching deregulation on relative wages in finance. These results together with those found in the study by Philippon and Reshef (2012) call for a better understanding of the dynamics of wages in the finance industry.
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I analyze the impact of the formation of universal banks on corporate investment by looking at the gradual dismantling of the Glass-Steagall Act's separation between commercial and investment banking. Using a sample of US firms an...
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I analyze the impact of the formation of universal banks on corporate investment by looking at the gradual dismantling of the Glass-Steagall Act's separation between commercial and investment banking. Using a sample of US firms and their relationship banks, I show that firms curtail debt issuance and investment after positive shocks to the underwriting capacity of their main bank. This result is driven by unrated firms and is strongest immediately after a shock. These findings suggest that universal banks may pay more attention to large firms providing more underwriting opportunities while exacerbating financial constraints of opaque firms, in line with a shift to a banking model based on transactional lending.
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This article explores whether deregulation of the Australian retail banking sector in the 1980s delivered the enhanced consumer choice that had been promised. Using new data on banking products and their usage, it analyses consume...
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This article explores whether deregulation of the Australian retail banking sector in the 1980s delivered the enhanced consumer choice that had been promised. Using new data on banking products and their usage, it analyses consumers' ability to select optimal frontier' products. It concludes that following deregulation of retail banking, product offerings underwent such tumultuous change that the scope for effective consumer choice was severely constrained. While there were improvements towards the end of the period, progress was not assisted by the banks' strategy of proliferating and re-bundling products. Consequently, the anticipated improvements to consumer choice were slow to arrive.
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This paper examines the cost, technical and allocative efficiency of 43 Chinese banks over the period 1993 to 2000. The goal of this analysis is to identify the change in Chinese banks' efficiency following the program of deregula...
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This paper examines the cost, technical and allocative efficiency of 43 Chinese banks over the period 1993 to 2000. The goal of this analysis is to identify the change in Chinese banks' efficiency following the program of deregulation initiated by the government in 1995. Results show that the large state-owned banks and smaller banks are more efficient than medium sized Chinese banks. In addition, technical efficiency consistently dominates the allocative efficiency of Chinese banks. The financial deregulation of 1995 was found to improve cost efficiency levels including both technical and allocative efficiency.
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Bank solvency questions and bank failures in the U.S. have become issues of renewed concern in recent years. Given the significance of bank solvency and bank failures for the health and stability of the U.S. economy, it is imperat...
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Bank solvency questions and bank failures in the U.S. have become issues of renewed concern in recent years. Given the significance of bank solvency and bank failures for the health and stability of the U.S. economy, it is imperative to have insights into factors that systematically influence bank failures, including major federal government banking statutes that have been implemented. Accordingly, this empirical study investigates factors influencing the bank failure rate in the U.S. over the period 1970 through 2008, with emphasis on three major banking statutes: the Community Reinvestment Act of 1977 (revised and enhanced in 1995), CRA; the Federal Deposit Insurance Corporation Improvement Act of 1991, FDICIA; and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, RNIBA. After allowing for a variety of economic and financial variables over the study period, the evidence strongly implies that, FDICIA acted to reduce bank failures whereas (presumably by increasing competition and/or increasing costs through branch bank expansion) RNIBA induced a net increase in bank failures in the U.S. Finally, the evidence implies that, the CRA also led to increased bank failures in the U.S., arguably by exposing banks to greater credit risk.
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Although policymakers often discuss trade-offs between bank competition and stability, past research provides differing theoretical perspectives and empirical results on the impact of competition on risk. We employ a new approach ...
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Although policymakers often discuss trade-offs between bank competition and stability, past research provides differing theoretical perspectives and empirical results on the impact of competition on risk. We employ a new approach for identifying exogenous changes in the competitive pressures facing individual banks and discover that an intensification of competition materially boosts bank risk. With respect to the mechanisms, we find that competition reduces banks' profits, pricing power, and charter values and increases banks' provision of nontraditional, riskier banking services and lending to riskier firms.
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This paper examines the effects of geographical deregulation on commercial bank performance across states. We reach several general conclusions. First, the process of deregulation on an intrastate basis generally improves bank pro...
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This paper examines the effects of geographical deregulation on commercial bank performance across states. We reach several general conclusions. First, the process of deregulation on an intrastate basis generally improves bank profitability and performance with higher returns and reduced riskiness. Deregulation of interstate banking produces mixed findings. For small banks, interstate banking deregulation leads to reduced riskiness. For medium-sized banks, it leads to increased riskiness. And for large banks, it leads to increased and decreased riskiness depending on the risk variable considered. Second, macroe-conomic variables - the unemployment rate, real personal income per capita, and the growth rate of real personal income - and the average interest rate affect bank performance as much, or more, than the process of deregulation, especially for the small and medium-sized banks. The large banks, however, generally do not respond significantly to state-level macroeconomic variables or the average interest rate. Finally, while some analysts argue that deregulation toward full interstate banking and branching produced more efficient banks and a healthier banking system, we find mixed results on this issue.
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