Efficient Banking Under Interstate Branching

J. OF MONEY, CREDIT, AND BANKING, Vol. 28 No. 4, November 1996

Posted: 29 Oct 1996

See all articles by Joseph P. Hughes

Joseph P. Hughes

Rutgers, The State University of New Jersey - Department of Economics

William W. Lang

Promontory Financial Group

Loretta J. Mester

Federal Reserve Banks - Federal Reserve Bank of Cleveland; University of Pennsylvania - The Wharton School

Choon-Geol Moon

Hanyang University

Abstract

Nationally chartered banks will be allowed to branch across state lines beginning June 1, 1997. Whether they will depends on their assessment of the profitability of such a delivery system for their services, and on their preferences regarding risk and return. We investigate the probable effect of interstate branching on banks' risk-return tradeoff, accounting for the endogeneity of deposit volatility. If interstate branching improves the risk-return tradeoff banks face, then banks that branch across state lines may choose a higher level of risk in return for higher profits. We find efficiency gains due to geographic diversity.

JEL Classification: G2, D2

Suggested Citation

Hughes, Joseph P. and Lang, William W. and Mester, Loretta J. and Moon, Choon-Geol, Efficient Banking Under Interstate Branching. J. OF MONEY, CREDIT, AND BANKING, Vol. 28 No. 4, November 1996, Available at SSRN: https://ssrn.com/abstract=7856

Joseph P. Hughes

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

William W. Lang

Promontory Financial Group ( email )

1201 Pennsylvania Avenue, NW
Suite 617
Washington, DC 20004
United States

HOME PAGE: http://www.promontory.com

Loretta J. Mester (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

University of Pennsylvania - The Wharton School

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Choon-Geol Moon

Hanyang University ( email )

17 Haegdang-dong
Seongdong-ku
Seoul, 133-791
KOREA

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