TY  - JOUR
AU  - Carlson,Mark
AU  - Mitchener,Kris James
TI  - Branch Banking as a Device for Discipline: Competition and Bank Survivorship During the Great Depression
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12938
PY  - 2007
Y2  - February 2007
UR  - http://www.nber.org/papers/w12938
L1  - http://www.nber.org/papers/w12938.pdf
N1  - Author contact info:
Mark Carlson
Federal Reserve Board
20th and Constitution Ave., NW
Washington, DC 20551
E-Mail: mark.a.carlson@frb.gov

Kris James Mitchener
Department of Economics
Leavey School of Business
Santa Clara University
Santa Clara, CA 95053
Tel: 408/554-4340
Fax: 408/554-2331
E-Mail: kmitchener@scu.edu
AB  - Because California was a pioneer in the development of intrastate branching, we use its experience during the 1920s and 1930s to assess the effects of the expansion of large-scale, branch-banking networks on competition and the stability of banking systems. Using a new database of individual bank balance sheets, income statements, and branch establishment, we examine the characteristics that made a bank a more likely target of a takeover by a large branching network, how incumbent unit banks responded to the entry of branch banks, and how branching networks affected the probability of survival of banks during the Great Depression. We find no evidence that branching networks expanded by acquiring "lemons"; rather those displaying characteristics of more profitable institutions were more likely targets for acquisition. We show that incumbent, unit banks responded to increased competition from branch banks by changing their operations in ways consistent with efforts to increase efficiency and profitability. Results from survivorship analysis suggest that unit banks competing with branch bank networks, especially with the Bank of America, were more likely to survive the Great Depression than unit banks that did not face competition from branching networks. Our statistical findings thus support the hypothesis that branch banking produces an externality in that it improves the stability of banking systems by increasing competition and forcing incumbent banks to become more efficient.
ER  -