what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

banking deregulation and industry structure evidence from the french banking reforms of 1985 we investigate how the deregulation of the french banking industry in the 1980s affected the real behavior of firms and the structure and dynamics of product markets following deregulation banks are less willing to bail out poorly performing firms and firms in the more bank dependent sectors are more likely to undertake restructuring activities at the industry level we observe an increase in asset and job reallocation an improvement in allocative efficiency across firms and a decline in concentration overall these findings support the view that a more efficient banking sector helps foster a schumpeterian process of creative destruction many economies around the world are characterized by heavily regulated bank

market power and firm risk a test of the quiet life hypothesis abstract this paper presents an empirical investigation of john r hicks quiet life hypothesis that firms in monopolistic markets will be more risk averse than firms in competitive markets a sample of 6 500 unit banks is used in a multivariate regression analysis to test the relationship between market concentration and overall risk measured by the coefficient of variation as well as certain financial ratios financial data are for the years 1969 1978 test results are consistent with hicks quiet life hypothesis it is also notable that while most structure performance studies in banking have found a quantitatively small effect of structure on performance these results suggest that the effect may be fairly substantial

the competitive dynamics of geographic deregulation in banking implications for productive efficiency deregulation of geographic restrictions in banking over the past 20 years has intensified both potential and actual competition in the industry the accumulating empirical evidence suggests that potential efficiency gains associated with consolidating banks are often not realized we evaluate the impact of this increased competition on the productive efficiency of nonmerging banks confronted with new entry in their local markets and find that the incumbent banks respond by improving cost efficiency thus studies evaluating the impact of bank mergers on the efficiency of the combining parties alone may be overlooking the most significant welfare enhancing aspect of merger activity

enhancing efficiency or crying over spilled milk the benefits of reform we analyze the welfare gains from the reform of existinggovernment induced distortions our results provide support forpolicies aimed at eliminating monopoly and other types of economicdistortion welfare gains over the status quo exist wheneverderegulation occurs the threat of deregulation can induce amonopoly or cartel to modify its behavior so a reform policy canprove beneficial even if reform does not actually occur optimalpolicy with commitment in fact allows a monopoly to deterderegulation the possibility of reregulation does not reverse ourresults the per period welfare gain from reform remainsundiminished

market specific effects of rail deregulation since partial deregulation of the railroad industry in 1980 real rail rates have fallen yet previous studies are inconclusive in identifying deregulation as the reason for lower rates in this paper the author develops a model that tests a variety of deregulation effects on the rates charged for transporting thirty four different commodities the results suggest that deregulation has significantly affected almost all commodities and that the effects vary by commodity and through time initially deregulation increased rates for some commodities had no effect on others and decreased rates on still others however by 1988 deregulation lowered rates significantly for almost all commodities copyright 1994 by blackwell publishing ltd

a study of bank efficiency taking into account risk preferences abstract i use the stochastic cost frontier approach to investigate efficiency of banks operating in the third federal reserve district accounting for the quality and riskiness of bank output in addition to the mean and mode of the conditional distribution of the one sided error term i calculate confidence intervals for the inefficiency measures based on the conditional distribution the results indicate that third district banks are operating at cost efficient output levels and product mixes but are not efficiently using their inputs the second part of the article relates the inefficiency measures to several correlates

does globalisation discipline monetary policymakers abstract this paper analyses globalisation using a small general equilibrium model it concludes that whether increased openness a reduction in the costs of international trade helps to discipline monetary policy in large open economies depends on the type of trade costs moreover to the extent that globalisation induces stronger competition in the goods market this may also have an adverse effect on monetary policy discipline the latter is due to international expenditure switching which becomes a more forceful channel as competition intensifies thus the answer to the question in the title is not necessarily affirmative

firm growth and efficiency in the banking industry a new test of the efficient structure hypothesis abstract in this paper we propose a new test of the efficient structure es hypothesis which predicts that efficient firms come out ahead in competition and grow as a result our test has significant advantages over existing ones because it is more direct and can jointly test the so called quiet life hypothesis which predicts that in a concentrated market firms do not minimize costs we then apply this test to large banks in japan consistent with the es hypothesis we find that more efficient banks become larger we also find that market concentration reduces banks efficiency which supports the quiet life hypothesis these findings imply that there is an intriguing growth efficiency dynamic throughout banks life cycle although our findings also suggest that the es hypothesis dominates the quiet life hypothesis in terms of economic impact

imperfect competition risk taking and regulation in banking abstract we asses the welfare implications of banking competition under various deposit insurance regimes in a model of imperfect competition with social failure costs and where banks are subject to limited liability we study the links between competition for deposits and risk taking incentives and conclude that the welfare performance of the market and the appropriateness of alternative regulatory measures depend on the degree of rivalry and the deposit insurance regime specifically when competition is intense and the social failure costs high deposit rates are excessive both in a free market and with risk based insurance if insurance premiums are insensitive to risk then the same is true even if there is no social cost of failure we find also that in an uninsured market with nonobservable portfolio risk or with flat premium deposit insurance deposit regulation rate regulation or deposit limits and direct asset restrictions are complementary tools to improve welfare in an uninsured market with observable portfolio risk or with risk based insurance deposit regulation may be a sufficient instrument to improve welfare

regulatory reform in european banking abstract a stylized model of the role of banks in a context of imperfect financial markets where the potential for market failure exists is proposed the specificity of banking is analyzed and the need of regulation explained the study of regulatory responses highlights the importance of their associated side effects particular attention is devoted to the interaction of regulation and competition in a strategic context the effects of deregulation and european integration of financial markets on banking competition are dealt with in the proposed framework

enjoying the quiet life under deregulation evidence from adjusted lerner indices for u s banks abstract the quiet life hypothesis posits that firms with market power incur inefficiencies rather than reap monopolistic rents we propose a simple adjustment to lerner indices to account for the possibility of forgone rents to test this hypothesis for a large sample of u s commercial banks we find that adjusted lerner indices are significantly larger than conventional lerner indices and trending upward over time instrumental variable regressions reject the quiet life hypothesis for cost inefficiencies however lerner indices adjusted for profit inefficiencies reveal a quiet life among u s banks

stochastic dominance pareto optimality and equilibrium asset pricing pricing a factor subspace contains the market portfolio and is such that every marketed contingent claim is second order stochastically dominated by a claim from the factor subspace conditions are given for the existence of equilibrium and it is shown how apt and capm can be interpreted in the framework of the paper if sufficiently many call options on the market portfolio are traded then the space spanned by these options can be used as the factor subspace we consider markets in which a collection of financial assets are traded the collection may be finite or infinite markets are frictionless and short sales of assets are permitted asset payoffs are random variables which are elements of a space of contingent claims by forming portfolios of the marketed assets payoffs in a certain linear subspace of the space of all contingent claims can be attained we call this subspace a space of marketed claims we say that a closed subspace of the space of marketed claims is a factor subspace if two conditions are satisfied first the market portfolio payoff i e the payoff of an aggregate endowment of portfolios per capita belongs to this subspace second every marketed contingent claim is dominated in the sense of second order stochastic dominance by some contingent claim in the factor subspace we demonstrate that for each asset market economy there is a well defined minimal factor subspace in the sense that no proper subspace of it can be a factor subspace if markets are complete i e if a full set of arrow securities are traded then the price of any given asset can be expressed in terms of prices of arrow securities or state prices breeden and litzenberger 1978 have shown that state prices can be replaced by the values of options thus in a complete market asset prices are determined either by state prices or call options it is established in this paper that these ideas and methods are applicable to asset pricing theories even when markets are incomplete making use of the argument of second order stochastic dominance we show that every constrained pareto optimal portfolio allocation consists exclusively of portfolios which generate the factor subspace the same holds for an equilibrium portfolio allocation thus for an economy with a factor subspace only a partial set of arrow securities which is large enough to generate the factor subspace is required to price assets this paper establishes that there exists an equilibrium in which the price of a portfolio equals the price of the dominating portfolio with the same expected return in the factor subspace since the dominating

privatization and efficiency in a differentiated industry we consider a market in which a public firm competes against private ones and ask what happens when the public firm is privatized in the short run privatization is harmful because prices rise the disciplinary role of the public firm is lost in the long run privatization leads to further entry the net effect is beneficial if consumer preference for variety is not too weak a sufficient statistic for the social surplus to be higher in the long run is that the public firm makes a loss this suggests that profitable firms should not necessarily be privatized

banks responses to deregulation profits technology and efficiency the deregulation of interest rates in the early 1980s raised bank funding costs and lowered profits in response banks raised fees for deposit services reduced branch operating costs and shifted to higher earning assets rates of return did not regain their prederegulation levels until the early 1990s our goal is to decompose the change in bank profits following deregulation into i intemal bank initiated adjustments to the new regulatory structure and ii external contemporaneous changes in banks business environment this decomposition will depend in part on the assumed competitive structure of the banking industry with perfect competition output and input prices are part of the external environment and banks responses are limited to changes in output and input quantities an alternative approach assumes imperfect competition where banks have some control over output prices deposit fees minimum balance requirements and interest rates on certain loans and output quantities and input prices comprise the external environment the altemative model is supported by the data using this model large banks but not smaller banks are found to have relied primarily on changing output prices and input use to mitigate and reverse the negative effects of deregulation on profits the adjustment to deregulation was essentially complete after four years following this additional changes in bank profitability during the late 1980s were primarily due to changes in banks business environment

measuring efficiency at u s banks accounting for heterogeneity is important abstract estimates of bank cost efficiency can be biased if bank heterogeneity is ignored i compare x inefficiency derived from a model constraining the cost frontier to be the same for all banks in the u s and a model allowing for different frontiers and error terms across federal reserve districts i find that the data reject the single cost function model x inefficiency measures based on the single cost function model are on average higher than those based on the separate cost functions model the distributions of the one sided error terms are wider for the single cost function model than for the separate cost functions model and the ranking of districts by the level of x inefficiency differs in the two models the results suggest it is important when studying x inefficiency to account for differences across the markets in which banks are operating and that since x inefficiency is by construction a residual it will be particulary sensitive to omissions in the basic model

big bad banks the winners and losers from bank deregulation in the united states we assess the impact of bank deregulation on the distribution of income in the united states from the 1970s through the 1990s most states removed restrictions on intrastate branching which intensified bank competition and improved bank performance exploiting the cross state cross time variation in the timing of branch deregulation we find that deregulation materially tightened the distribution of income by boosting incomes in the lower part of the income distribution while having little impact on incomes above the median bank deregulation tightened the distribution of income by increasing the relative wage rates and working hours of unskilled workers

partial privatization and firm performance most privatization programs begin with a period of partial privatization in which only non controlling shares of firms are sold on the stock market since management control is not transferred to private owners it is widely contended that partial privatization has little impact this perspective ignores the role that the stock market can play in monitoring and rewarding managerial performance even when the government remains the controlling owner using data on indian state owned enterprises we find that partial privatization has a positive impact on profitability productivity and investment widespread privatization in recent decades has generated a large empirical literature concerning the effect of ownership on firm performance most studies find that privatization has a positive impact on the profitability and efficiency of firms see megginson and netter 2001 for a recent survey 1 the firms in these studies have had a majority of their assets privatized and control rights have been transferred from the government to private owners surprisingly little is known about the effect of partial privatization where the government remains the controlling owner this paper seeks to address this gap in the literature by investigating whether the performance of state owned enterprises in india is affected by the sale of non controlling equity stakes on the stock market

bank competition and financial stability in asia pacific the impact of bank competition on financial stability has been a focus of academic and policy debate over the last two decades and particularly since the 2007 08 global financial crises beck 2008 oecd 2011 under the traditional competition fragility view banks cannot earn monopoly rents in competitive markets and this results in lower profits capital ratios and charter values this makes banks less able to withstand demand or supply side shocks and encourages excessive risk taking marcus 1984 alternatively the competition stability view suggests that competition leads to greater stability a less competitive banking market may lead to more risk taking if the big banks are deemed too important to fail and as such obtain implicit or explicit subsidies via government safety nets mishkin 1999 in addition banks with more market power tend to charge higher loan rates which may induce borrowers to assume greater risk leading to greater default in competitive banking markets loan rates are lower too big to fail issues and safety net subsidies are smaller and this results in a positive link between bank competition and stability boyd and de nicolo 2005 it could also be the case as noted by martinez miera and repullo 2010 that bank competition and stability are linked in a non linear manner and in a similar vein berger et al 2009 argue that competition and concentration may coexist and can simultaneously induce stability or fragility

the identification of technology regimes in banking implications for the market power fragility nexus neglecting the existence of different technologies in banking can contaminate efficiency market power and other performance measures by simultaneously estimating i technology regimes conditional on exogenous factors ii efficiency conditional on risk management and iii lerner indices of german banks we identify three distinct technology regimes public retail small specialized and universal relationship system estimation at the regional level reveals that greater bank market power increases bank profitability but also fosters corporate defaults corporate defaults in turn lead to higher probabilities of bank distress which supports the market power fragility hypothesis c 2009 elsevier b v all rights reserved

multimarket contact competition and pricing in banking abstract in this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model in which the divergence of price from marginal cost is a function of multimarket linkages the model is estimated using aggregate data from the italian regions for the years 1997 2009 our results show that multimarket contact is positively and significantly correlated to the market power index and is also connected to both home and non home market concentration the evidence is robust to changes in model specification and multimarket contact measures and supports the idea that firms which have a greater amount of contact are more likely to collude

enjoying the quiet life corporate governance and managerial preferences much of our understanding of corporations builds on the idea that managers when they are not closely monitored will pursue goals that are not in shareholders interests but what goals would managers pursue this paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences we use plant level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws we find that when managers are insulated from takeovers worker wages especially those of white collar workers rise the destruction of old plants falls but the creation of new plants also falls finally overall productivity and profitability decline in response to these laws our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life

the joint estimation of bank level market power and efficiency the aim of this study is to provide a methodology for the joint estimation of efficiency and market power of individual banks the proposed method utilizes the separate implications of the new empirical industrial organization and the stochastic frontier literatures and suggests identification using the local maximum likelihood lml technique through lml estimation of market power of individual banks becomes feasible while a number of restrictive theoretical and empirical assumptions are relaxed the empirical analysis is carried out on the basis of emu bank data market power estimates indicate fairly competitive conduct in general however heterogeneity in market power estimates is substantial across banks the latter result suggests that the practice of some banks deviates from the average fairly competitive behavior a finding that has important policy implications finally efficiency and market power present a negative relationship which is in line with the so called quiet life hypothesis