Branch Banking as a Device for Discipline: Competition and Bank Survivorship During the Great Depression / Mark Carlson, Kris James Mitchener.

Format:

Book

Author/Creator:

Carlson, Mark.

Contributor:

National Bureau of Economic Research.

Mitchener, Kris James.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12938.

NBER working paper series no. w12938

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Branch Banking as a Device for Discipline

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

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.

Notes:

Print version record

February 2007.