A Frontier Measure of U.S. Banking Competition

43 Pages Posted: 10 Dec 2012

See all articles by Wilko Bolt

Wilko Bolt

De Nederlandsche Bank (Dutch Central Bank); VU University Amsterdam

David B. Humphrey

Florida State University - Department of Finance

Date Written: December 10, 2012

Abstract

The three main measures of competition (HHI, Lerner Index, and H-Statistic) are uncorrelated for U.S. banks. We investigate why this occurs, propose a frontier measure of competition, and apply it to five major bank service lines using data only available since 2008. Fee-based banking services comprise 35% of bank revenues so assessing competition by service line is preferred to using a single measure for traditional activities extended to the entire bank. Academic-based competition measures explain only 1% of HHI variation. HHI merger/acquisition guidelines could be raised since current banking concentration seems unrelated to competition.

Keywords: Competition, banks, frontier analysis

JEL Classification: L11, G21, C21

Suggested Citation

Bolt, Wilko and Humphrey, David B., A Frontier Measure of U.S. Banking Competition (December 10, 2012). De Nederlandsche Bank Working Paper No. 359. Available at SSRN: https://ssrn.com/abstract=2187300 or http://dx.doi.org/10.2139/ssrn.2187300

Wilko Bolt (Contact Author)

De Nederlandsche Bank (Dutch Central Bank) ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

David B. Humphrey

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-7899 (Phone)
850-668-6696 (Fax)

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