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Author:Jayaratne, Jith 

Report
Entry restrictions, industry evolution, and dynamic efficiency: evidence from commercial banking

This paper shows that bank performance improves significantly after restrictions on bank expansion are lifted. We find that operating costs and loan losses decrease sharply after states permit statewide branching and, to a lesser extent, after states allow interstate banking. The improvements following branching deregulation appear to occur because better banks grow at the expense of their less-efficient rivals. By retarding the "natural" evolution of the industry, branching restrictions reduce the performance of the average banking asset. We also find that most of the reduction in banks' ...
Staff Reports , Paper 22

Journal Article
The benefits of branching deregulation

When the Riegle-Neal Interstate Banking and Branching Efficiency Act went into effect in June 1997, it marked the final stage of a quarter-century-long effort to relax geographic restrictions on banks. This article examines an earlier stage of the deregulatory process-the actions taken by the states between 1978 and 1992 to remove the barriers to intrastate branching and interstate banking-to determine how the lifting of geographic restrictions affect the efficiency of the banking industry. The analysis reveals that banks' loan losses and operating costs fell sharply following the state ...
Economic Policy Review , Volume 3 , Issue Dec , Pages 13-29

Report
Information problems and deposit constraints at banks

Following the investment-cash flow literature, we test whether bank lending is constrained by the availability of insured deposits--a necessary condition for the existence of bank lending channel of monetary policy. We treat insured deposits as a type of "internal fund," similar to cash flows. We use a simple model to sort out the possible identification issues in interpreting a lending-deposit correlation, including reverse causality and omitted variable bias. To minimize the latter, we split the sample of banks by leverage and also use deposit flows at sister banks within a holding ...
Research Paper , Paper 9731

Report
The finance-growth nexus: evidence from bank branch deregulation

This paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the United States over the past 25 years. We find that the rates of real, per-capita growth in income and output increase significantly following intrastate branch reform. We also argue that the observed changes in growth reflect causality flowing from financial sector reform to improved growth performance. This argument is supported by evidence from the process of branching deregulation, from the timing of such policy changes, and from bank lending ...
Research Paper , Paper 9513

Report
Entry restrictions, industry evolution and dynamic efficiency: evidence from commercial banking

This paper shows that bank performance improves significantly after restrictions on bank expansion are lifted. We find that profits increase and loan quality improves after states permit statewide branching, and--to a lesser extent--after states allow interstate banking. The improvements following branching deregulation appear to occur because better banks increase market share at the expense of their less efficient rivals. By retarding the "natural" evolution of the industry, branching restrictions reduced the performance of the average banking asset. We also find limited support for the ...
Research Paper , Paper 9630

Journal Article
Consolidation and competition in Second District banking markets

The consolidation rate in the Federal Reserve's Second District banking markets generally outpaced the national average between 1989 and 1994. Nevertheless, these banking markets remain relatively unconcentrated, with midsized banks increasing their market share at the expense of large banks.
Current Issues in Economics and Finance , Volume 2 , Issue Jul

Report
Rational herding and the spatial clustering of bank branches: an empirical analysis

Bank branches in New York City tend to be spatially clustered. For instance, of the 221 branches that were opened in New York City between July, 1990 and June, 1995, 181 (or 82 percent) were opened in census tracts that already had at least one other branch. A number of recent theoretical papers have highlighted the possibility of rational herding in various arenas of economic activity. This paper explores empirically whether the apparent clustering of bank branches can be at least partially attributed to rational herding by banks. We find that even after controlling for the expected ...
Research Paper , Paper 9724

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