Empirical Studies of Bank Deposits and Bank Lending
Friday, Jan. 5, 2018 8:00 AM - 10:00 AM
- Chair: Philip Ostromogolsky, Federal Deposit Insurance Corporation
The Competitive Effects of Large Banks on Community Banks
AbstractTwo concurrent trends have defined the banking industry in recent decades. From 1994 to 2016, banks with real assets exceeding $50 billion increased their share of industry assets from 13% to 66%. Over the same period, the number of banks with real assets less than $1 billion decreased from 12,986 to 5,401. The effects of industry consolidation are felt acutely at the branch level. In 1994, branches of banks with fewer than $1 billion in real assets represented 46% of the nearly 81,000 national bank branches. By 2016, small bank branches had fallen to 27% of the national total despite bank branches increasing by 13% industry-wide.
We provide new insights on the effects of consolidation within the banking industry by documenting the variation of these trends across the metropolitan statistical area (MSA) and non-MSA divide. We show that overall branch and deposit growth is highest in MSAs both in relative and absolute terms. While, small bank branches and deposits have declined both in and out of MSAs, we find that the decline is steeper in the MSAs. We argue that these differences cannot be explained by technological or regulatory changes themselves. Instead, we consider the role that large bank competition plays in the performance of community banks. We use a difference in differences approach, using large bank expansion through mergers and acquisitions of medium-sized banks as a quasi-experiment to changes in the small bank competitive environment.
Consumer Surplus and Bank Value
AbstractWe examine how banks create value for consumers. We find that bank deposit-taking, rather than bank mortgage lending, accounts for the bulk of consumer surplus generated in the banking sector. Our estimates indicate that the demand for deposits is inelastic and that consumers place a high value on the deposit services offered by banks. Conversely, the demand for mortgages is highly elastic with consumers simply selecting the mortgage provider offering the lowest rate. Our results also indicate that the growth of the shadow banking sector has led to modest welfare gains for consumers.
Lender-Borrower Relationships and Loan Origination Costs
AbstractThe failure of Lehman Brothers on September 15, 2008 triggered the largest crisis in the history of U.S. money market funds. The Lehman bankruptcy and the subsequent collapse of the Reserve Primary Fund sparked an industry-wide run on prime institutional money market funds. We show that during the Money Market Fund Crisis of 2008, funds sponsored by banks suffered half the withdrawals seen by non-bank-sponsored funds. We use the method of Altonji, Elder, and Taber (2002, 2005) to estimate the causal effect of bank sponsorship on fund withdrawals during the crisis. We ﬁnd that on the eve of the crisis, banks were viewed as less likely to fail than non-bank fund sponsors. This strongly suggests that bank-sponsored funds faced fewer withdrawals during the crisis because bank sponsors were viewed as ﬁnancially stronger than non-bank sponsors. Lastly, we ﬁnd that the difference in outflows between bank- and non-bank- sponsored funds is greatest among funds who held illiquid assets on the eve of the crisis. This result provides strong evidence that banks were more willing and able than non-banks to support their funds’ portfolios when called on to do so. This suggests that the effect of bank sponsorship on fund outflows was driven by banks’ willingness and ability to support their funds.
- G1 - General Financial Markets