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Entry Restrictions, Industry Evolution and Dynamic Efficiency : Evidence from Commercial Banking, Research Paper 9630

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Entry Restrictions, Industry Evolution and Dynamic Efficiency : Evidence from Commercial Banking, Research Paper 9630

DATE: August 1996

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ABSTRACT: 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 hypothesis that more competitive banking markets following deregulation better discipline bank managers, thereby improving bank performance.

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Jayaratne, Jith and Strahan, Philip E. (Philip Elliot), 1963-. "Entry Restrictions, Industry Evolution and Dynamic Efficiency : Evidence from Commercial Banking, Research Paper 9630," Research Papers (Federal Reserve Bank of New York) (August 1996). https://fraser.stlouisfed.org/title/6570/item/615545, accessed on March 23, 2023.

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SUBJECTS:

THEMES: CLASSIFICATION:
  • jel: G2
  • jel: L5
  • lcc: HG136 .R45 no.9630
IDENTIFIERS:
  • oclc: 36169356
  • fip:fednrp:9630:
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