Integration Among US Banks

57 Pages Posted: 17 Mar 2017 Last revised: 19 Mar 2017

See all articles by Abhinav Anand

Abhinav Anand

IIM Bangalore

John Cotter

University College Dublin; University of California, Los Angeles (UCLA) - Anderson School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: March 14, 2017

Abstract

We study integration among a large sample of 1109 US banks over a quarter-century from 1990–2014. We define a bank’s level of integration (measured in percentages) as the degree of dependence of its stock returns on common national banking factors. We show that the median US bank’s integration has risen from 4.4% in 1990 to 10.1% in 2014. Integration across banks is highly unevenly distributed, appears to obey a power law and for the median “systemically important” bank, corresponding integration levels are 6–10 times higher. The US banking sector is segmented into a small group of “core” banks, strongly integrated with each other; and a large group of weakly integrated banks in the “periphery”. Determinants of US banks’ integration include bank size, its market beta and its idiosyncratic risk, which, all else equal, have a significantly positive impact; while increased reliance on deposit financing and short term financing have a significantly negative impact on integration.

Keywords: Financial Integration, Bank Integration, Bank Risk, Systemically Important Banks, G-SIB, Too-big-to-Fail, Principal Components, Core-Periphery, Power Laws, Banking Networks

JEL Classification: C58, G21, C33

Suggested Citation

Anand, Abhinav and Cotter, John, Integration Among US Banks (March 14, 2017). Available at SSRN: https://ssrn.com/abstract=2932989 or http://dx.doi.org/10.2139/ssrn.2932989

Abhinav Anand (Contact Author)

IIM Bangalore ( email )

Bannerghatta Road
Bangalore, 560 076
India

John Cotter

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/professorjohncotter/

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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