Geographic Deregulation and Bank Capital Structure

51 Pages Posted: 24 May 2018 Last revised: 19 Aug 2023

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

Özde Öztekin

Florida International University (FIU)

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Date Written: October 7, 2022

Abstract

The literature demonstrates numerous consequences of bank geographic deregulation, but neglects bank capital structure – critical to performance, resilience, and prudential regulation/supervision. We supply first-time evidence on geographic deregulation effects on bank capital. We also distinguish and test two novel mechanisms through which geographic deregulation may affect bank behavior. The competitive defense and competitive offense mechanisms differentiate deregulation effects in increasing external competitive pressures on banks versus expanding banks’ capacity to compete externally. We find statistically and economically significant evidence of geographic deregulation effects on two bank capital management tools – target capital ratios and speeds of adjustment to these targets – yielding higher targets and faster adjustment. Findings are robust to addressing identification concerns using dynamic panel methodology, a gravity-deregulation approach, and time-varying bank-specific instruments. The data also support both the competitive defense and competitive offense mechanisms, suggesting future research and policy applications of these mechanisms to banking and more generally.

Keywords: Competition, Deregulation, Banking, Capital Structure, Adjustment Speed

JEL Classification: G18, G21, G28

Suggested Citation

Berger, Allen N. and Öztekin, Özde and Roman, Raluca A., Geographic Deregulation and Bank Capital Structure (October 7, 2022). Journal of Banking and Finance, Vol. 149, No. 106761, 2023, Available at SSRN: https://ssrn.com/abstract=3177995 or http://dx.doi.org/10.2139/ssrn.3177995

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Özde Öztekin (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Raluca A. Roman

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
375
Abstract Views
2,111
Rank
145,309
PlumX Metrics