Working Paper: NBER ID: w26838
Authors: Dean Corbae; Pablo Derasmo
Abstract: 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.
Keywords: Bank Concentration; Regulation; Riegle-Neal Act; Market Structure; Risk-Taking Behavior
JEL Codes: E44; G21; L11; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (G28) | increased concentration among the top four banks in the U.S. (F65) |
| lowered costs of expanding a bank's funding base (G21) | increased concentration among the top four banks in the U.S. (F65) |
| idiosyncratic shocks to deposits and loan portfolios (G21) | endogenous adjustment of bank sizes (G21) |
| increased concentration (D30) | different risk profiles of larger banks compared to smaller banks (G21) |