Geographical deregulation and competition in U.S. banking markets

Abstract

The effects of geographical deregulation on competition in banking markets is examined. Using a model that develops an index of competition as proposed by Bresnahan and applied to banking markets by Shaffer, the empirical evidence suggests that geographical deregulation has not had a significant impact on competition. The limited effects of geographical deregulation on competition is consistent with other evidence presented, suggesting that banking markets were already highly competitive. In those states where a significant effect was observed, geographical deregulation increased the degree of competition in some states but had the opposite effect in others.

Has competition in the Japanese banking sector improved?

“…This is essentially the method that is formalized by Bresnahan (1982) and Lau (1982), and has been applied to many studies. 2 For example, Shaffer (1989Shaffer ( , 1993, Shaffer and DiSalvo (1994), and Zardkoohi and Fraser (1998) applied this method to the banking industries in the U.S. and Canada. The method uses time-series data, and therefore only elucidates a long-run average degree of competition.…”

Does deregulation make markets more competitive? Evidence of mark-ups in Spanish savings banks

“…For the US and Canadian banking sectors, Shaffer (1989) found that banks are more competitive than Cournot competition. Zardkoohi and Fraser (1998) find a small effect of geographical deregulation on competition in the US banking industry since the level of competition was already high before deregulation. For the case of Finnish banks, Suominen (1994) finds the presence of some market power after deregulation, while strong competition was discovered before deregulation.…”

Deregulation, competition and consumer welfare in a banking market: evidence from Hong Kong

“…Neven and Roller (1999) and Canhoto (2004) show that the competition improves after deregulation for seven European countries and Portugal, respectively. On the other hand, Zardkoohi and Fraser (1998) and Yildirim and Philippatos (2007) suggest that the competition does not improve after deregulation in the US and several Latin American countries, respectively. 2 For example: Berger and Mester (2003) argue that U.S. banks raised their profits and market powers by upgrading product quality during 1990s in the post-deregulation era.…”