tailieunhanh - Bank mergers and the dynamics of deposit interest rates

We assume that every instrument of interest can be assigned a fair value. If the payoff stream of the instrument is ,wedenoteitsfairvalue Following GAAP accounting rules, we view the fair value as the price at which the instrument could be sold “in an orderly transaction”. For instruments traded in a market, fair values can be read off market prices. For nontraded instruments, such as loans, fair values have to be constructed from the payoffs of comparable instruments. The fair values of fixed income instruments exhibit a low-dimensional factor structure. In particular, the overwhelming majority of movements in bond prices is due to the “overall level” of interest. | . .DEUTSCHE . BUNDESBANK EUROSYSTEM Bank mergers and the dynamics of deposit interest rates Ben R. Craig Deutsche Bundesbank and Federal Reserve Bank of Cleveland Valeriya Dinger University of Bonn Discussion Paper Series 2 Banking and Financial Studies No 02 2008 Discussion Papers represent the authors personal opinions and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Editorial Board Heinz Herrmann Thilo Liebig Karl-Heinz Todter Deutsche Bundesbank Wilhelm-Epstein-Strasse 14 60431 Frankfurt am Main Postfach 10 06 02 60006 Frankfurt am Main Tel 49 69 9566-1 Telex within Germany 41227 telex from abroad 414431 Please address all orders in writing to Deutsche Bundesbank Press and Public Relations Division at the above address or via fax 49 69 9566-3077 Internet http Reproduction permitted only if source is stated. ISBN 978-3-86558-389-5 Printversion ISBN 978-3-86558-3 90-1 Internetversion Abstract Despite extensive research interest in the last decade the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper we aim for a comprehensive empirical analysis of a bank merger s impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 US banks with a monthly frequency for the time period 1997-2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the US. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger bank and local market features. An innovation of our work is the introduction of an econometric approach of estimating the change of the deposit rates given their rigidity. Keywords Deposit rate dynamics bank mergers deposit rate rigidity JEL-Classification