tailieunhanh - Banking Market Conditions And Deposit Interest Rates

The macroeconomic configuration at the present time is conducive to sizeable interest rate exposures in the financial industry. Because virtually all firms are tempted to take the same risks (“herding”), there is also a very important systemic dimension. All firms will not be able to get out when expectations of future rates change – leading to “overshooting” in market interest rates or even illiquidity in interest rate hedging markets. 18 But how should we analyse these risks? The problem is that there is no widely agreed way of analysing the optimal degree of maturity transformation in an economy. Savers want their. | Banking Market Conditions And Deposit Interest Rates Richard J. Rosen Federal Reserve Bank of Chicago Chicago IL 60604 Financial Institutions Center Wharton School Philadelphia PA 19104 rrosen@ September 2005 JEL Classification Numbers G21 G28 L11 K21 Key words Banks Size Structure Deposits Interest Rates Antitrust Policy Market Concentration Abstract This paper addresses the impact of market conditions on bank deposit interest rates. Using data for 1988-2003 we find that rates are affected by market size structure defined as the distribution of market shares of banks of different sizes whether or not the market share is achieved entirely in that local market in addition to the effects of market concentration and multimarket bank presence noted in earlier work. There is also evidence that banks compete more aggressively in their home markets than in other markets. But the effects of market conditions on deposit rates depend not only on the characteristics of banks in a market but also on the type of market. Market structure appears to matter less in rural markets than in urban markets. Finally we argue that it is important to control for MSA fixed effects when predicting how deposit rates change with market characteristics. We give several examples where a crosssectional regression yields counterintuitive predictions while a fixed-effects regression does not. These findings have implications for antitrust policy in banking. The participants in seminars at the Federal Reserve Bank of Chicago and the Norges Bank and presentations at the Financial Management Association meetings and the International Industrial Organization Conference provided helpful comments. These views in this paper are those of the author and may not represent the views of the Federal Reserve Bank of Chicago or the Federal Reserve System. Please address correspondence to Richard Rosen Federal Reserve Bank of Chicago phone 312322-6368 fax 312-294-6262 and email rrosen@. Banking

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