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Rising Bank Concentration

Dean Corbae, Pablo D'Erasmo

NBER Working Paper No. 26838
Issued in March 2020
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Industrial Organization, Monetary Economics

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.

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Document Object Identifier (DOI): 10.3386/w26838

Published: Dean Corbae & Pablo D’Erasmo, 2020. "Rising Bank Concentration," Journal of Economic Dynamics and Control citation courtesy of

 
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