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Working Paper
The effects of local banking market structure on the banking-lending channel of monetary policy
We study the relationship between banking competition and the transmission of monetary policy through the bank lending channel. Using business small loan origination data provided from the Community Reinvestment Act from 1996-2002 in our analysis, we are able to reaffirm the existence of the bank lending channel of monetary transmission. Moreover, we find that the impact of monetary policy on loan originations is weaker in more concentrated markets.
Working Paper
The effects of past entry, market consolidation, and expansion by incumbents on the probability of entry
The threat of entry is an important factor in the evaluation of the potential competitive effects of proposed mergers and acquisitions. In the evaluation of proposed bank mergers, a high probability of entry, or strong potential competition, is often found to mitigate the potential anticompetitive effect of a proposed horizontal merger. Because the probability of entry is not directly observed for each local market, variables such as per capita income, population growth and past entry are typically used to predict the probability of future entry. This study extends previous research on the ...
Working Paper
Is Lending Distance Really Changing? Distance Dynamics and Loan Composition in Small Business Lending
Has information technology improved small businesses' access to credit by hardening the information used in loan underwriting and reducing the importance of proximity to lenders? Previous research, pointing to increasing average lending distances, suggests that it has. But this conclusion can obscure differences across loans and lenders. Using over 20 years of Community Reinvestment Act data on small business lending, we find that while average distances have increased substantially, distances at individual banks remain unchanged. Instead, average distance has increased because a small group ...
Discussion Paper
Credit Card Profitability
Credit cards are one of the most ubiquitous consumer financial products in the United States, with more than 75 percent of households owning at least one general purpose credit card in 2019. According to the G.19 Consumer Credit Statistical release, revolving consumer credit, which mainly consists of credit cards and related plans, stood at over one trillion dollars at the end of 2021.
Working Paper
Market power in outputs and inputs: an empirical application to banking
This paper provides evidence on the empirical separability of input and output market imperfections. We specify a model of banking competition and simultaneously estimate bank conduct in output (loan) and input (deposit) markets. Our results suggest that firms display some degree of non-competitive behavior in both the loan and the deposit markets. Moreover, we find that the input side and the output side are empirically separable, that is, the measurement of market power on one side of the market is not affected by assuming that the other side of the market is perfectly competitive. Our ...
Discussion Paper
How the Largest Bank Holding Companies Grew: Organic Growth or Acquisitions?
In this note, we decompose growth into that related to mergers and acquisitions (M&A) and to all other sources; discuss factors that have affected growth and consolidation; describe our data sources and methodology; and present results.
Working Paper
On the welfare cost of inflation
Estimates are provided for the social cost of inflation in the U.S. economy. The estimated cost, expressed as a fraction of income, is proportional to the square root of the nominal interest rate. This approximation assigns much higher costs to low rates of inflation than does the familiar welfare triangle formula. ; These estimates are rationalized using Sidrauski's model, in which real balances yield utility, and also using the McCallum-Goodfriend model, in which real balances and time are combined via a transactions technology to support a given spending flow. The latter formulation is ...
Journal Article
Money, the fallacy of composition, and inflation
Working Paper
Scale economies, scope economies, and technical change in Federal Reserve payment processing
In the past decade, the U.S. economy has witnessed a tremendous surge in the usage of electronic payment processing services and an increased importance of the firms that provide these services. The payments industry has also undergone changes in cost structure with the introduction of new technology. Unfortunately, data on the private provision of payment processing services are not available. However, the Federal Reserve provides similar services and collects data on its own provision of payments processing, offering an opportunity to gain insights into the cost structure of payments ...