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This paper uses a large sample of individual banking organizations, observed from 1996 to 2005, to investigate the characteristics that made them more likely to be acquired. We use a definition of acquisition that we consider preferable to that used in much of the previous literature, and we employ a competing-risk hazard model that reveals important differences that depend on the type of acquirer. Since interstate acquisitions became more numerous during this period, we also investigate differences in the determinants of acquisition between in-state and out-of-state acquirers. We also employ a subsample of publicly traded banking organizations to investigate the role of managerial ownership in explaining the likelihood of acquisition. The hypothesis that acquisitions serve to transfer resources from less efficient to more efficient uses receives substantial support from our results, as do a number of other relevant hypotheses.

This study examines the price effects of recent US bank mergers that substantially increased local market concentration. Using the deposit interest rates that banks offer their customers as our price measure, we find that, over the 1991-94 time period, deposit rates offered by participants in substantial horizontal mergers and their local market rivals declined by a greater percentage than did deposit rates offered by banks not operating in markets in which such mergers took place. We interpret our results as evidence that these mergers led to increased market power.

A number of large banking organizations have substantially broadened the distances at which they are willing to extend commercial loans, but there is also evidence to suggest that this has occurred primarily at the high side of the distribution of lending distances. In this paper, we employ a new source of data to examine the relationship between lending decisions and distance between lender and borrower for that part of the distance distribution where, arguably, most of the competitive interactions among lenders still occur. We report three basic findings: (1) distance operates as a deterrent to lending, even within areas traditionally defined as local markets, (2) distance is more of a deterrent for small banks than for larger organizations, even within these areas, and (3) for those commercial loans made within areas currently treated by regulators as markets, distance has not been declining in importance. Indeed, a preponderance of the evidence suggests that it is becoming, if anything, more of a factor. Possible explanations and policy implications are discussed.

We employ extensive information on bank deposit rates and area migration patterns to examine pricing relationships implied by switching costs. We argue that, because of the trade-off between attracting new customers and exploiting old ones, banks offer higher deposit rates in areas experiencing more in-migration. Further, because greater outmigration implies that a locked-in customer will not be with the bank for as many periods, banks will offer lower deposit rates in areas exhibiting greater out-migration. Also, because this effect of out-migration logically depends on the extent of in-migration, an interaction effect exists. We find evidence strongly supporting these relationships.

This paper seeks to determine whether the Herfindahl-Hirschman index (HHI) adequately accounts for the roles of market share inequality and the number of competitors in explaining bank deposit and loan rates. This is been done by estimating deposit-rate and loan-rate equations in which the HHI is decomposed into components that reflect share inequality and number of competitors and, alternatively, by adding measures of share inequality and the number of competitors as additional explanatory variables. Results are inconclusive in the case of deposit rates but suggest that the HHI does not give sufficient weight to the number of competitors in explaining loan rates.

Studies have found evidence of price rigidity in a variety of different industries. This paper employs a data set that offers numerous advantages over those used previously to investigate how price rigidity varies across firms and markets. It also addresses the unresolved issue of asymmetry between upward and downward price changes and discusses alternative explanations for the results obtained. The examination focuses on the setting of deposit interest rates by banks. Primary findings are that price rigidity is significantly greater in markets characterized by higher levels of concentration and that deposit rates are significantly more rigid when the stimulus for a change is upward rather than downward. The latter result is analogous to the finding of great downward price rigidity in the more typical case in which prices are paid to the firm, rather than by the firm, and contrasts with the finding of no asymmetry recently reported by Carlton (1986).

This study uses recently collected Community Reinvestment Act loan data to examine how small business lending in local geographies areas (defined as markets) by lenders not physically in those areas changed between 1996 and 2001. The results show that the importance of \"outside lending\" increased substantially over this period when measured in terms of the number of loans rather than the dollar volume of loans. The levels and rates of growth in out-of-market lending are more modest if the share of out-of-market lending is expresses in dollar volumes and almost insubstantial if organizations that engage in substantial credit card lending are excluded as out-of-market lenders. Using a fixed-effects model and an extensive panel data set, it is found that the share of outside lending into local geographic markets is positively associated with local market concentration and the average wage of tellers in the market, consistent with the hypotheses that outside loans are to some degree substitutes for in-market loans.

This paper investigates depository institutions' decisions whether or not to impose surcharges (direct usage fees) on nondepositors who use their ATMs. In addition to documenting patterns of surcharging, we examine motives for surcharging, including both direct generation of fee revenue and the potential to attract deposit customers who wish to avoid incurring surcharges at an institution's ATMs. Consistent with expectations, we find that the probability of surcharging increases with both the institution's share of market ATMs and the time since surcharging was first allowed in the state, and decreases with increasing local ATM density. Further, we find evidence consistent with the use of surcharges to attract deposit customers who are new to the local banking market, but we find no evidence that larger banks use surcharges as a means to attract existing customers away from smaller local competitors.

The commonly observed positive correlation between market concentration and profitability may be explained by non-competitive pricing behavior, as argued by the structure-performance hypothesis, or by the greater efficiency of firms with dominant market shares, as argued by the efficient structure hypothesis. By examining the price-concentration relationship instead of the profit-concentration relationship, this paper tests the structure-performance hypothesis in a manner that excludes the efficient-structure hypothesis as an alternative explanation of the results. The results strongly support the structure-performance hypothesis and are robust with respect to model specification, measurement of concentration, and econometric technique.