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Do mergers improve the x-efficiency and scale efficiency of U.S. banks?: Evidence from the 1980s
Peristiani, Stavros (1996)
A central issue currently debated among bank analysts and economists is whether mergers enhance the efficiency of surviving banks. This paper investigates the postmerger performance of acquiring banks that participated in a merger during 1980-90. The evidence suggests that acquiring banks failed to improve postmerger X-efficiency. However, we find that acquiring banks experienced moderate gains in profitability and scale efficiency relative to a control sample. The second part of the paper uses regression analysis to identify factors influencing the performance of bank merger survivors. The ...
Research Paper , Paper 9623

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Entry restrictions, industry evolution and dynamic efficiency: evidence from commercial banking
Strahan, Philip E.; Jayaratne, Jith (1996)
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

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Ongoing restructuring of retail banking
Radecki, Lawrence J.; Orlow, Daniel; Wenninger, John (1996)
The largest U.S. commercial banks are currently in the process of restructuring their retail operations. This paper describes the innovations that are being adopted, explains the integrated strategies for restructuring, and reviews the policy issues that emerge. We find that banks are restructuring by developing complete customer-relationship profiles, switching over to remote electronic delivery channels (phone centers, home banking, and next-generation ATMs), relocating branches to large retail outlets, and redesigning selected branches as investment centers. The immediate goal of ...
Research Paper , Paper 9634

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Agency problems and risk taking at banks
Saidenberg, Marc R.; Demsetz, Rebecca; Strahan, Philip E. (1997)
The moral hazard problem associated with deposit insurance generates the potential for excessive risk taking on the part of bank owners. The banking literature identifies franchise value--a firm's profit-generating potential--as one force mitigating that risk taking. We argue that in the presence of owner/manager agency problems, managerial risk aversion may also offset the excessive risk taking that stems from moral hazard. Empirical models of bank risk tend to focus either on the disciplinary role of franchise value or on owner/manager agency problems. We estimate a unified model and find ...
Research Paper , Paper 9709

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Are bank shareholders enemies of regulators or a potential source of market discipline?
Park, Sangkyun; Peristiani, Stavros (2001-09-01)
In moral hazard models, bank shareholders have incentives to transfer wealth from the deposit insurer--that is, maximize put option value--by pursuing riskier strategies. For safe banks with large charter value, however, the risk-taking incentive is outweighed by the possibility of losing charter value. Focusing on the relationship between book value, market value, and a risk measure, this paper develops a semi-parametric model for estimating the critical level of bank risk at which put option value starts to dominate charter value. From these estimates, we infer the extent to which the ...
Staff Reports , Paper 138

Report
Corporate governance and banks: what have we learned from the financial crisis?
Mehran, Hamid; Morrison, Alan; Shapiro, Joel (2011)
Recent academic work and policy analysis give insight into the governance problems exposed by the financial crisis and suggest possible solutions. We begin this paper by explaining why governance of banks differs from governance of nonfinancial firms. We then look at four areas of governance: executive compensation, boards, risk management, and market discipline. We discuss promising solutions and areas where further research is needed.
Staff Reports , Paper 502

Report
Corporate governance of financial institutions
Mehran, Hamid; Mollineaux, Lindsay (2012)
We identify the tension created by the dual demands of financial institutions to be value-maximizing entities that also serve the public interest. We highlight the importance of information in addressing the public?s desire for banks to be safe yet innovative. Regulators can choose several approaches to increase market discipline and information production. First, they can mandate information production outside of markets through increased regulatory disclosure. Second, they can directly motivate potential producers of information by changing their incentives. Traditional approaches to bank ...
Staff Reports , Paper 539

Working Paper
Banks vs. credit unions; dynamic competition in local markets
Schmid, Frank A.; Emmons, William R. (2000)
One interesting aspect of the financial services industry is that for-profit institutions such as commercial banks compete directly with not-for-profit financial intermediaries such as credit unions. In this article, we analyze competition among banks and between banks and credit unions using a dynamic model of spatial competition. The model allows for the co-existence of (for-profit) banks and (not-for-profit) credit unions. Using annual county-level data on banking market concentration and credit-union participation rates for the period 1989-96, we find empirical evidence of two-way ...
Working Papers , Paper 2000-006

Working Paper
Bank managers' objectives
Mester, Loretta J.; Hughes, Joseph P. (1994)
Working Papers , Paper 94-8

Working Paper
Bank management, competition, and interest rates : a portfolio model of discount window activity
Jackson, William D. (1976)
The ability to borrow funds at the discount window is a potentially valuable incentive for a bank to belong to the Federal Reserve System.
Working Paper , Paper 76-01

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