Assessing the Common Ownership Hypothesis in the Us Banking Industry

Abstract

The common ownership hypothesis (COH) states that firms with common shareholders, primarily large asset managers, compete less aggressively with each other. The U.S. banking industry is well suited to assess the common ownership hypothesis, because thousands of private banks without common ownership (CO) compete with hundreds of public banks with high and increasing levels of CO. This paper assesses the COH in the banking industry using more comprehensive ownership data than previous studies. In simple comparisons of raw deposit rate averages we document that the deposit rates of public banks are similar in markets where they share common shareholders with their rival and in markets where they do not. Panel regressions of deposit rates on the profit weights implied by the COH are generally not consistent with the COH if bank-quarter FEs are included. These estimates are “precise zeros” with 95% CIs suggesting that the threefold rise in CO among public banks between 2005 and 2022 moved their deposit rates by less than a quarter of a basis point in either direction. To assess the COH along non-price dimensions we also estimate the effect of CO on deposit quantities, and find that the estimates are also not consistent with the COH.

Keywords: Bank competition, Common ownership

JEL Classification: G21, G34, L10, L20, L40