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Ultimate Ownership and Bank Competition

85 Pages Posted: 3 Jan 2016 Last revised: 24 Jul 2016

José Azar

University of Navarra, IESE Business School

Sahil Raina

Alberta School of Business, University of Alberta

Martin C. Schmalz

University of Michigan, Stephen M. Ross School of Business

Date Written: July 23, 2016

Abstract

We use a uniquely extensive branch-level dataset on deposit account interest rates, maintenance fees, and fee thresholds, and document substantial time-series and cross-sectional variation in these prices. We then examine whether variation in bank concentration helps explain the variation in prices. The standard measure of concentration, the HHI, is not correlated with any of the outcome variables. We then construct a generalized HHI (GHHI) that captures both common ownership (the degree to which banks are commonly owned by the same investors) and cross-ownership (the extent to which banks own shares in each other). The GHHI is strongly correlated with all prices. We use the growth of index funds as an arguably exogenous source of cross-sectional variation of county-level common ownership growth to suggest a causal link from the GHHI to higher prices for banking products.

Keywords: Competition, Ownership, Diversification, Pricing, Antitrust, Governance, Product Market, Bank Competition

JEL Classification: L41, L10, G34

Suggested Citation

Azar, José and Raina, Sahil and Schmalz, Martin C., Ultimate Ownership and Bank Competition (July 23, 2016). Available at SSRN: https://ssrn.com/abstract=2710252 or http://dx.doi.org/10.2139/ssrn.2710252

José Azar (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Sahil Raina

Alberta School of Business, University of Alberta ( email )

2-32B Business Building
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://sites.ualberta.ca/~sraina/

Martin Schmalz

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan St
R5456
Ann Arbor, MI 48109-1234
United States
7347630304 (Phone)

HOME PAGE: http://https://sites.google.com/site/martincschmalz/

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