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Rising Bank Concentration

Author

Listed:
  • Dean Corbae
  • Pablo D'Erasmo
Abstract
Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising concentration occurs along a transition path between two steady states after branching costs decline.

Suggested Citation

  • Dean Corbae & Pablo D'Erasmo, 2020. "Rising Bank Concentration," Staff Report 594, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:87574
    DOI: 10.21034/sr.594
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    Cited by:

    1. Salomón García, 2022. "Mortgage securitization and information frictions in general equilibrium," Working Papers 2221, Banco de España.
    2. Stephen Kho, 2023. "Deposit market concentration and monetary transmission: evidence from the euro area," Working Papers 790, DNB.
    3. Fernholz, Ricardo T. & Koch, Christoffer, 2021. "The rise of big U.S. banks and the fall of big European banks: A statistical decomposition," European Economic Review, Elsevier, vol. 135(C).
    4. Kho, Stephen, 2024. "Deposit market concentration and monetary transmission: evidence from the euro area," Working Paper Series 2896, European Central Bank.
    5. Dean Corbae & Pablo D'Erasmo, 2021. "Capital Buffers in a Quantitative Model of Banking Industry Dynamics," Econometrica, Econometric Society, vol. 89(6), pages 2975-3023, November.
    6. Isabel Gödl-Hanisch, 2023. "Bank Concentration and Monetary Policy Pass-Through," CESifo Working Paper Series 10378, CESifo.
    7. Kallias, Antonios & Kallias, Konstantinos & Lu, Guancheng & Zhang, Song, 2021. "Why local banking market concentration hinders IPOs and how it can work to issuers’ advantage," Finance Research Letters, Elsevier, vol. 43(C).
    8. Kirill Anikeev, 2024. "Heterogeneous Banking System Under a Negative Interest Rate Policy," Russian Journal of Money and Finance, Bank of Russia, vol. 83(2), pages 77-91, June.

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    More about this item

    Keywords

    Banking industry dynamics; Imperfect competition; Bank concentration;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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