Journal of Banking & Finance 33 (2009) 263–271

Contents lists available at ScienceDirect

Journal of Banking & Finance

journal homepage: www.elsevier.com/locate/jbf

The profitability of small single-market banks in an era of multi-market banking q

Timothy H. Hannan, Robin A. Prager *
Board of Governors of the Federal Reserve System, Washington, DC 20551, United States

a r t i c l e i n f o a b s t r a c t

Article history: This paper examines the relationship between the profitability of small single-market banks and the pres-
Received 19 May 2008 ence in the market of large banking organizations and banking organizations that operate primarily outside
Accepted 23 July 2008 of the local banking market. We find that, in rural banking markets, the profitability of small single-market
Available online 9 August 2008
banks is significantly related to the presence of both large and small primarily-out-of-market banks. We
also find that an increased presence of large or small primarily-out-of-market banks in rural banking mar-
JEL classification: kets reduces the positive effect of an increase in concentration on small single-market bank profits. This
G21
finding is consistent with theoretical predictions reported in the recent literature and has important impli-
L10
cations for antitrust policy. In urban banking markets, we find little evidence of any relationship between
Keywords: the profitability of small single-market banks and the presence of large or primarily-out-of-market banks.
Banks Published by Elsevier B.V.
Competition
Pricing

1. Introduction We suggest two reasons, however, why these structural

In recent years, the US banking industry has experienced dra-
matic structural changes. The number of commercial banking orga-
nizations operating in the US declined from approximately 9200 at
the end of 1990 to fewer than 6200 as of year-end 2007. This de-
cline in the number of banking organizations was primarily the re-
sult of mergers and acquisitions. A key factor driving these
structural changes was deregulation, which relaxed or eliminated
many previously existing geographic constraints on banking orga-
nizations, allowing banks to establish branch networks that span
numerous local areas within a state and, in some cases, across state
lines and throughout the country.
As the number of large, geographically diversified banking orga-
nizations has increased, their share of nationwide deposits and the
number of local banking markets in which they operate have in-
creased as well. This substantial geographic expansion on the part
of many larger banking institutions, however, has not resulted in
any notable increase in the concentration of local banking markets,
as traditionally defined by regulatory authorities. Indeed, from
1990 to 2007, the average Herfindahl–Hirschman index (HHI)
actually declined for both metropolitan statistical areas (MSAs)
and rural (non-MSA) counties.1
q
The views expressed in this paper are those of the authors and do not
necessarily reflect the views of the Board of Governors or its staff.
* Corresponding author. Tel.: +1 202 452 3643; fax: +1 202 728 5838.
E-mail addresses: THannan@frb.gov (T.H. Hannan), Robin.Prager@frb.gov (R.A.
Prager).
1
The average deposit-based HHI for commercial banks fell from 2010 to 1766 in
MSAs and from 4291 to 3838 in rural counties over this time period.
changes may raise concerns that are ultimately relevant to policy.
The first relates to antitrust policy itself. Recent literature sug-
gests that if banking organizations operating primarily outside
of a given local market account collectively for a large share of
banking operations in that market, then the traditionally assumed
relationship between market structure and firm performance may
be weakened, even for those banks that operate primarily or
exclusively in that market. Thus, a trend towards increased geo-
graphic diversity among banking organizations could undermine
the fundamental link between local market structure and compe-
tition that forms the basis for antitrust policy in the banking
industry.
A second issue of potential concern relates to the viability of
small single-market (community) banks. Despite the fairly
dramatic decline in their numbers over the past decade-and-a-half,
as of mid-year 2007, approximately 3800 small single-market
banks continued to operate in the US, comprising more than 60%
of all commercial banking organizations.2 These community banks
fill an important niche in banking, providing relationship loans and
personalized service to customers in their local market areas,
particularly households, small businesses, and agricultural firms. Re-
search indicates that community banks have a comparative advan-
tage in lending to ‘‘informationally opaque” borrowers, most
notably small businesses and farmers, and that they continue to
originate sizeable shares of all loans to these important segments
2
As noted in Section 4, we define a small, single-market bank as a bank that has
total assets of less than $1 billion, derives at least 90% of its deposits from a single
local banking market, and is not a subsidiary of a multi-bank holding company.

0378-4266/$ - see front matter Published by Elsevier B.V.

doi:10.1016/j.jbankfin.2008.07.018
264 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271
of the economy.3 Given their large numbers and the special niche
they fill, it is important to understand how the changing environ-
ment in the banking industry affects the continued viability of these
organizations.
It is useful at this point to distinguish between what might be
termed a ‘‘multi-market bank” (MMB) and a ‘‘primarily-out-of-
market bank” (POMB). The term ‘‘multi-market” literally means
operating in more than one geographic market, and is often inter-
preted to mean operating in numerous markets. The term ‘‘primar-
ily-out-of-market” is defined relative to a particular market, and
refers to a bank that operates in that market, but has most of its
operations elsewhere. Clearly, a POMB must be an MMB, but the
reverse is not necessarily true. This distinction is important be-
cause, as discussed in more detail below, POMBs are most relevant
to the first of the issues that motivates this study – the implied
relationship between the structure of a market and the perfor-
mance of banks operating in it. The second issue – the effect of
an increase in the prevalence of geographically diversified banking
organizations on the profitability and viability of small single-mar-
ket banks – could be addressed with either concept, but we choose
to focus here on POMBs to address this issue as well.
A priori, it is not clear whether the growing presence of large
primarily-out-of-market banks (LPOMBs) in local banking markets
adversely affects the profitability of smaller banking organizations.
As discussed in more detail below, large multi-market banks
(LMMBs), whether primarily-out-of-market or not, tend to offer
lower retail deposit rates and charge higher deposit-related fees,
perhaps allowing competing small single-market banks (SSMBs)
to increase profitability by doing the same. However, LMMBs
may exercise a pricing advantage on the loan side of the balance
sheet, and they tend to offer a wider range of products to attract
customers away from SSMBs. In addition, LMMBs may be more
(or less) efficient in offering the services and products that the cus-
tomers of SSMBs care about.
In this study, we seek, as a primary goal, to estimate the rela-
tionship between LPOMB presence in a local banking market and
the profitability of SSMBs that operate in that market. Although a
few recent studies have considered the effects of competition from
large geographically diversified banking organizations on the prof-
itability of SSMBs, we go beyond the previous research in four
important ways: First, we focus specifically on large primarily-
out-of-market banks rather than large multi-market banks more
generally. Second, to investigate what we regard as an important
antitrust issue, we test whether the relationship between LPOMB
presence and SSMB profitability differs between more concen-
trated local banking markets and less concentrated markets, as
predicted by the models developed in some recent contributions
to the literature. Third, unlike any of the previous studies, we con-
sider the effects of LPOMB presence on the profitability of SSMBs in
both urban and rural banking markets. Fourth, we test whether the
relationship between LPOMB presence and SSMB profitability var-
ies with the size of the observed single-market bank.
Any observed effects of LPOMB presence on the profitability of
SSMBs could be attributable to the LPOMBs’ size, their ‘‘out-of-
marketness” or both. We attempt to distinguish between the size
effect and the out-of-market effect by examining the relationships
between SSMB profitability and measures of the market presence
of LPOMBs, large banks that are not primarily-out-of-market
(LNPOMBs), and small primarily-out-of-market banks (SPOMBs).
We find that in rural banking markets the profitability of SSMBs
is significantly related to the presence of both large and small pri-
marily-out-of-market banks. We find that both the magnitudes
3
See, for example, Critchfield et al. (2004). It should be noted, however, that some
recent studies (e.g., Berger et al., 2007) find evidence suggesting the absence of such a
comparative advantage for community banks.
and the signs of these relationships vary with local market concen-
tration and with the size of the SSMB; however, for an average-
sized SSMB operating in a rural banking market with average
concentration, SSMB profitability is positively related to the pres-
ence of both LPOMBs and SPOMBs. Of direct relevance to antitrust
policy, our results imply that an increased presence of large or
small POMBs (but not large non-POMBs) in a rural banking market
is associated with a weakening of the relationship between local
market concentration and SSMB profitability. In urban banking
markets, we find little evidence of any relationship between SSMB
profitability and the presence of large or primarily-out-of-market
banks.
The remainder of the paper is organized as follows: Section 2
discusses the reasons why LPOMB presence might be expected to
influence the profitability of SSMBs and reviews the existing liter-
ature related to this topic. Sections 3 and 4 describe the model to
be estimated and the data, respectively. Section 5 presents the re-
sults of the empirical analysis, and Section 6 concludes the paper.
2. Assessing the competitive impact of large, primarily-out-of-
market banks
There are several reasons why the presence of LPOMBs (or large
multi-market banks, more generally) might alter the competitive
environment in which small single-market banks operate. A large
competitor may have cost advantages or disadvantages, relative
to an SSMB, as a result of either economies or diseconomies of scale
and (product) scope. Another size-related difference is the greater
variety and range of services that the larger banking organization
may offer its customers, such as foreign exchange and investment
services. A further advantage of size often attributed to larger
banking organizations concerns access to wholesale funds. Park
and Pennacchi (forthcoming) note that if large banking organiza-
tions enjoy access to low-cost wholesale funds that are not avail-
able to smaller banking organizations, then large multi-market
banks may offer retail depositors lower deposit interest rates
and, at the same time, offer borrowers lower loan interest rates,
than are offered by their smaller competitors.4 In addition, Hannan
and Prager (2006) report that, even after controlling for the size of
the banking organization, deposit interest rates are strongly nega-
tively related to the number of local markets in which a bank oper-
ates. They speculate that this may be due to either a diversification
benefit that reduces the cost of wholesale funds or the ability of a
geographically diversified firm to offer a product mix that is highly
valued by a relatively small fraction of potential customers in any gi-
ven local market.
Another potentially important consideration is the fact that, as
found by Radecki (1998) and confirmed by Heitfield (1999), multi-
market banks tend to offer the same deposit interest rates in all of
the local areas (at least within a given state) in which they operate.
While this characteristic of multi-market banking does not in itself
yield an unambiguous prediction concerning the impact of compe-
tition from LPOMBs on the profitability of small single-market
competitors, it does suggest, as we will see, that the profitability
of small single-market banks will be less responsive to changes
in conditions in individual local banking markets (including, most
importantly, concentration) as a result of the presence of LPOMB
competitors.
A few recent studies have compared the prices offered on retail
deposits by different types of banking organizations operating
within the same local banking market. Hannan and Prager (2004)
and Hannan (2006) find that POMBs tend to offer lower deposit
4
Kiser (2004) also models the effect of bank access to low-cost wholesale funds on
retail deposit interest rates.
 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271
interest rates and charge higher deposit-related fees than do sin-
gle-market banks (SMBs) serving the same local market. Using a
different data source, Park and Pennacchi (forthcoming), who focus
on LMMBs rather than POMBs, find that within a given MSA, de-
posit interest rates offered by LMMBs are significantly lower than
those offered by small banks.5
These same three studies consider the effects of an increase in
POMB or LMMB presence on deposit pricing. Hannan and Prager
(2004) and Hannan (2006) both find that an increase in POMB
presence in a local market causes the pricing of deposits by com-
peting single-market banks to move in a direction less attractive
to the depositor (lower deposit interest rates and higher deposit-
related fees). Similarly, Park and Pennacchi (forthcoming) find that
an increase in LMMB presence in an MSA is associated with a de-
crease in deposit interest rates offered by banks serving that
MSA. The authors of all three studies attribute these findings to
the competitive interaction within markets between different
types of banking organizations Although these findings are consis-
tent with the hypothesis that LMMBs enjoy a wholesale funding
advantage, and hence offer less attractive prices for retail deposits,
they are also consistent with the hypothesis that operation in sev-
eral local markets entails less efficiency in the provision of retail
deposit services. These findings do, however, cast doubt on the
importance of the range of services offered to retail depositors as
an explanation for pricing differences between multi-market and
single-market banks, since it does not seem plausible that a wider
array of services at LMMBs, if valued highly by depositors, would
induce competing single-market banks to offer the retail depositor
less attractive deposit-related prices.
Of direct relevance to antitrust policy, Hannan and Prager
(2004) and Hannan (2006) find that an increase in POMB presence
reduces the sensitivity of deposit prices offered by SMBs to mea-
sures of local market concentration, and Park and Pennacchi (forth-
coming) obtain a similar result regarding the effect of an increase
in LMMB presence on the sensitivity of deposit interest rates to lo-
cal market concentration. This effect is predicted by the models
developed in Hannan and Prager (2004) and Park and Pennacchi
(forthcoming), relying on the proposition (confirmed in several
empirical studies, as noted above) that multi-market banks tend
to charge the same deposit-related prices in most local markets.
Under these circumstances, changes in the prices offered by SSMBs
associated with a change in local market concentration would be
dampened by the presence of competing MMBs.
The mechanism that explains this weakening of the relationship
between local market structure and the prices offered by single-
market banks is as follows: The traditional structure–conduct–per-
formance (SCP) paradigm in the industrial organization literature
posits a relationship between market concentration and prices that
is the result of the exercise of market power by firms in more
highly concentrated markets. The prices offered by MMBs (and
particularly POMBs) do not respond (or respond very little) to
changes in concentration in the local banking market under con-
sideration because they primarily reflect conditions prevailing out-
side that particular local market. If MMBs, whose prices do not
respond to changes in local market concentration, account for an
increasing share of bank branches in a local market, then small sin-
gle-market banks operating in that market will have less scope for
profitably adjusting their prices in response to an increase in con-
centration. Thus, the traditionally predicted relationship between
the prices of small single-market banks and market concentration
should be weakened as the presence of MMBs in a local market in-
creases. It is important to note that this effect is independent of the
5
Park and Pennacchi (forthcoming) define a large multi-market bank as a bank that
has more than $10 billion in deposits; they assume that any bank of that size will
operate in multiple local banking markets.
265
size of the MMBs and does not require any cost differential be-
tween MMBs and SMBs.
The model developed in Park and Pennacchi (forthcoming) also
considers the effect of LMMB presence on the profitability of
SSMBs. The authors note that, if it is a funding advantage that dis-
tinguishes large multi-market banks from their small single-mar-
ket competitors, then a greater presence of LMMBs should
increase SSMB profits derived from retail deposit taking because
LMMBs with a wholesale funding advantage compete less aggres-
sively for retail deposits than do small single-market firms. They
note, however, that this increase should be less pronounced in
more concentrated markets, where, in the absence of LMMBs, the
SCP paradigm predicts that deposit interest rates would be sup-
pressed below competitive levels (and deposit related fees would
be elevated above competitive levels) due to firms exercising mar-
ket power.
At the same time, as Park and Pennacchi (forthcoming) note, a
funding advantage on the part of LMMBs should reduce SSMB prof-
its derived from retail lending. This effect occurs because lower
funding costs allow LMMBs to offer lower loan interest rates to
borrowers. They argue that this profit reduction should be more
pronounced in more concentrated markets, where the SCP para-
digm would predict that, in the absence of competition from
LMMBs, single-market banks would charge higher interest rates
on loans and earn higher profits than would single-market banks
operating in less concentrated markets.6 Park and Pennacchi (forth-
coming) conclude from this analysis that, although the direction of
the effect of large multi-market bank presence on single-market
bank profitability is ambiguous, an increase in LMMB presence is
more likely to reduce single-market bank profits and less likely to in-
crease them in relatively concentrated local banking markets.
A few empirical studies have examined the effect of competi-
tion from large geographically diversified banking organizations
on the profitability of SSMBs. Whalen (2001) finds that, during
the 1995–1999 period, small bank profitability declined as the
presence of large multi-state bank holding companies in the same
metropolitan statistical area (MSA) increased. Pilloff (1999) finds
that the profitability of small single-market banks operating in rur-
al markets, measured over the one-year period from June 1995 to
June 1996, increased with greater presence of very large, regionally
prominent banking organizations. Neither study addressed the is-
sue of whether the large geographically diversified organizations
studied operated predominantly outside the markets of the ob-
served single-market banks, although one can presume that this
would have been the case, particularly in the Pilloff study.
The most recent study to look at this issue is Berger et al. (2007)
(henceforth BDGW). Focusing on urban markets, they examine the
relationship between the profitability of SSMBs and the market
shares of large multi-market banks, small multi-market banks,
and large single-market banks. BDGW define a multi-market bank
as one that operates in more than one market. As such, their multi-
market bank shares include both multi-market banks that operate
predominantly outside the market in which the observed single-
market bank operates and those that operate predominantly with-
in that market. BDGW find that the profitability of SSMBs operating
in urban markets was positively related to multi-market bank
presence in the 1980s and negatively related to multi-market bank
presence in the 1990s. They ascribe this difference in findings be-
tween the two decades to technological progress in lending, which
provided multi-market banks with an advantage that they were
able to exploit in the later time period.
6
This argument, of course, assumes that LMMBs and smaller, single-market banks
compete in the provision of at least some kinds of retail loans. If LMMBs focus on
‘‘hard information” loans, while small, single-market banks focus on ‘‘soft informa-
tion” loans, as is often asserted in the literature, then this effect may be negligible.
266 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271
3. The empirical model
Using a large sample of small single-market banks observed
over the years 1996–2003, we examine the relationship between
SSMB profitability and the presence in the market of various types
of competitors by estimating relationships of the form
PROFit ¼ b0 þ b1 HHImt þ b2 ln SIZEi;t1 þ b3 LPOMBSHRm;t1
þ b4 LNPOMBSHRm;t1 þ b5 SPOMBSHRm;t1
þ b6 HHImt  LPOMBSHRm;t1 þ b7 HHImt
 LNPOMBSHRm;t1 þ b8 HHImt  SPOMBSHRm;t1
þ b9 ln SIZEi;t1  LPOMBSHRm;t1 þ b10 ln SIZEi;t1
 LNPOMBSHRm;t1 þ b11 ln SIZEi;t1
 SPOMBSHRm;t1 þ b12 ln POPmt þ b13 PCImt
þ b14 BRSHAREi;t1 þ b15 SCORPit þ eit : ð1Þ
The dependent variable, PROFit is a measure of the profitability of
small single-market bank i at time t. HHImt denotes the value of
the Herfindahl–Hirschman index of concentration (defined as the
sum of squared deposit market shares) for market m (the market
in which bank i is located) at time t. ln SIZEi,t1 denotes the nat-
ural log of the total assets of bank i at time t  1.7 Following Bar-
ros (1999) and Hannan and Prager (2004), and consistent with the
theoretical models of spatial competition developed in those pa-
pers, we use the share of market branches (excluding those
owned by bank i) owned by a particular type of bank to measure
the presence of that type of bank in the local market.8 In order to
distinguish between the role of competitors’ size and the role of
competitors’ geographic focus in influencing SSMB profitability,
we include on the right-hand-side of our equation the shares of
branches in market m that are owned by large primarily-out-of-
market banks (LPOMBSHRm,t1), large banks that do not operate
primarily-out-of-market (LNPOMBSHRm,t1), and small primarily-
out-of-market banks (SPOMBSHRm,t1). ln POPmt denotes the natu-
ral log of the population of market m at time t, and PCImt denotes
the per capita income observed for market m at time t.
BRSHAREi,t1 denotes the share of branches in the market owned
by bank i at time t  1 and SCORPit is a dummy variable equal to
one if bank i is an S-Corporation at time t and zero otherwise.9
Eq. (1) is estimated using panel data procedures that employ bank
and time fixed effects.
The coefficient of HHImt, b1, is predicted to be positive if, as im-
plied by the structure–conduct–performance paradigm, banks in
more concentrated markets earn higher profits as a result of less
competitive behavior in the market. The variable ln SIZEi,t1, de-
fined as the natural log of the total assets of the bank, is employed
to control for differences associated with the size of the bank. This
variable is entered in log form, since it is highly positively skewed,
and it is not reasonable to expect it to have a constant marginal ef-
fect on profitability throughout the substantial range over which it
is observed. The expected sign of its coefficient, b2, is unclear, a
priori.
Coefficients b3–b11 are of primary interest in testing the rela-
tionship between SSMB profitability and the presence of large or
primarily-out-of-market banks. Because LPOMBSHRm,t1,
LNPOMBSHRm,t1, and SPOMBSHRm,t1 each enter the estimated
7
Note that some right-hand-side variables (SSMB size, SSMB branch share, and the
market shares of various types of competitors) are lagged in our estimating equation
in order to mitigate potential endogeneity concerns.
8 10
Using the share of market branches rather than the share of market deposits also
reduces the potential for endogeneity-induced bias in our estimates.
9
An S-corporation generally does not pay corporate income taxes on its profits;
rather, the shareholders pay income taxes on their proportionate shares of the
corporation’s profits.
equation alone and interacted with both HHImt and ln SIZEi,t1,
the effect of each of these market share variables on SSMB profit-
ability will depend on three separate coefficient values (b3, b6
and b9 for LPOMBSHRm,t1; b4, b7 and b10 for LNPOMBSHRm,t1;
b5, b8 and b11 for SPOMBSHRm,t1), as well as the values of HHImt
and ln SIZEi,t1.
The signs of b3, b4, and b5, the coefficients of LPOMBSHRm,t1,
LNPOMBSHRm,t1, and SPOMBSHRm,t1, respectively, cannot be
predicted a priori. As noted above, Park and Pennacchi have argued
that, because of a funding advantage, large banks will tend to offer
the depositor lower deposit rates, but also charge the borrower
lower loan rates. These considerations suggest that a greater pres-
ence of large banks, regardless of whether or not they are primar-
ily-out-of-market organizations, will tend to increase SSMB profits
that are derived from retail deposits, but reduce SSMB profits that
are derived from lending. In addition, even small single-market
banks may derive a substantial portion of their profits from activ-
ities that cannot be classified as either retail deposit taking or local
lending, and how the presence of large banking organizations af-
fects the profitability of these activities is not clear. Thus, the over-
all relationship between small single-market bank profitability and
large bank presence may depend on the mix of activities in which
the small single-market banks participate. The Park and Pennacchi
(forthcoming) model does not address the effects of the presence of
small primarily-out-of-market banks on the profitability of SSMBs;
however, we can infer that the model would predict an effect only
if SPOMBs and SSMBS face different costs.
The sign of the coefficient of the interaction between HHImt and
LPOMBSHRm,t1, b6, is expected to be negative, even if we cannot
predict the sign of the coefficient of LPOMBSHRm,t1. The reason
is that, as noted above, greater presence of LPOMBs should cause
the profits that SSMBs derive from retail deposits to rise by less,
and the profits that SSMBs derive from lending operations to de-
cline by more, if the market in which the SSMB operates is rela-
tively concentrated. This implies that the coefficient on the
interaction term will be negative, regardless of the sign of b3.
Although the Park and Pennacchi (forthcoming) model does not
have anything to say about the effect of the presence of SPOMBs
on the profitability of SSMBs, the lack of responsiveness of POMB
prices to local market conditions discussed earlier implies that
the coefficient on the interaction between HHImt and SPO-
MBSHRm,t1 should be negative. The predictions regarding the
signs of b6 and b8 have particular relevance for antitrust policy,
since they imply that increased presence of primarily-out-of-mar-
ket banks (large or small) serves to reduce the strength of the rela-
tionship between local market structure and firm performance.
The expected sign of the coefficient on the interaction between
HHImt and LNPOMBSHRm,t1 is unclear, a priori, since the reason
for predicting negative coefficients for the interactions of HHImt
with both LPOMBSHRm,t1 and SPOMBSHRm,t1 does not apply in
this case.10
Interactions of ln SIZEit with LPOMBSHRm,t1, LNPOMBSHRm,t1,
and SPOMBSHRm,t1 are also included in the estimations to allow
for the possibility that the impact of large bank presence or primar-
ily-out-of-market bank presence on the profitability of small sin-
gle-market banks varies with the size of the small single-market
bank. Such variation would be expected if the efficiency of sin-
gle-market banks or the product mix they offer varies with size.
The expected signs of the coefficients on these terms are unclear,
a priori.
The predicted negative coefficients for the interactions of HHI mt with
LPOMBSHRm,t1 and SPOMBSHRm,t1 derive from the proposition that the prices of
primarily-out-of-market banks are unresponsive to changes in concentration in the
market under consideration. This should not be true, however, in the case of large
banks that derive a substantial portion of their deposits from this market.
 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271
The natural log of the population of the market (ln POPmt) and
the per capita income of the market (PCImt) are included to control
for the effects that these market characteristics may have on a
bank’s profit opportunities. Market population is entered in log
form because, like bank assets, its distribution is extremely posi-
tively skewed. We also control for the share of market branches
owned by the observed small single-market bank (BRSHAREi,t1).
The coefficient of this variable should be positive if it serves as
an indicator of bank-specific market power. Alternatively, after
controlling for bank size, a larger branch share may indicate higher
costs of serving the same number of banking customers, in which
case the coefficient sign would be expected to be negative.
Finally, we include the dummy variable SCORPit. A surprising
number of small single-market banks are organized as S-Corpora-
tions (28% of the sample in 2003). Their reported net income tends
to be higher than that reported by other organizations because
they do not pay corporate income taxes. Thus, we expect the coef-
ficient on this variable to be positive.
4. The data
The data used in this study were obtained from a number of
sources, including quarterly reports of condition and income (call
reports) filed by each depository institution, the Federal Deposit
Insurance Corporation’s Summary of Deposits (SOD), the Office of
Thrift Supervision’s Branch Office Survey (BOS), and the Depart-
ment of Commerce’s Regional Accounts Data. Following the previ-
ous literature, we define local banking markets as either
metropolitan statistical areas (MSAs or urban markets) or non-
MSA counties (rural markets).11 For purposes of our analysis, we de-
fine a small single-market bank as one that is not a subsidiary of a
multi-bank holding company, has total assets of less than $1 billion,
and derives at least 90% of its deposits from a single local banking
market.12 A primarily-out-of-market bank is defined, relative to a
particular local banking market, as an institution that derives less
than 30% of its deposits from that market. A large banking organiza-
tion is defined as one that has total banking assets greater than or
equal to $1 billion.
The dependent variable in our analysis is profitability, mea-
sured as either return on assets (ROA) or return on equity (ROE).
The profitability measures, as well as our measure of bank size
(natural log of total banking assets) are derived from bank Call Re-
ports. Information about the locations of branches and the deposits
held by each depository institution in each local market were ob-
tained from the SOD (for commercial banks) and the BOS (for
thrifts).13 This information was used to determine the share of each
institution’s deposits held in each market, thereby enabling us to
classify each bank as a single-market bank with essentially all of
its deposits derived from the market under consideration, a primar-
ily-out-of-market bank with respect to the market under consider-
ation, or neither, and to determine the share of market branches
owned by each small single-market bank in our sample (BRSHARE)
and collectively by the large primarily-out-of-market banks
(LPOMBSHR), the large, not primarily-out-of-market banks
(LNPOMBSHR), and the small primarily-out-of-market banks (SPO-
11
A large number of papers define retail banking markets in this way. Dick (2008) is
a recent example.
12
We exclude from our sample small single-market banks operating in a few
metropolitan markets (New York; Wilmington, DE; and Salt Lake City, UT) because of
the presence of some very large special purpose banks in these markets that might
distort the values of some of our market-level variables. We also exclude from the
sample those small single-market banks that are less than two years old, because very
young firms tend to have atypical earnings. We thank an anonymous referee for
suggesting the latter exclusion.
13
Throughout this paper, the term ‘‘branches” should be interpreted to include head
offices.
267
MBSHR) in each market. Branch level deposit data were also used
to construct the measure of market concentration (HHI) for each
banking market. Demographic data (population and per capita in-
come) for each local banking market were obtained from the Depart-
ment of Commerce’s Regional Accounts Data.
Table 1 contains variable definitions and Table 2 presents the
mean values for each variable used in the analysis, year-by-year,
for both urban and rural markets. A few patterns in these data
are worth noting: (i) SSMBs operating in rural markets consistently
earn higher average rates of return on assets than do SSMBs oper-
ating in urban markets. (ii) The average SSMB in an urban market is
more than twice as large, in terms of assets, as the average SSMB
operating in a rural market. (iii) The average share of market
branches owned by the individual SSMBs in our sample is quite
stable over time (about 19% in rural markets and about 2% in urban
markets), despite the substantial declines in the average aggregate
shares of all SSMBs from 1996 to 2003 (from 58.0% to 45.3% in rural
markets, and from 29.9% to 22.5% in urban markets) shown in Figs.
1 and 2 (in these figures, LPOMBSHR is the average share of market
branches operated by large, primarily-out-of-market banks;
LNPOMBSHR is the average share of market branches operated
by large, not primarily-out-of-market banks; SPOMBSHR is the
average share of market branches operated by small, primarily-
out-of-market banks; and SSMBSHR is the average share of market
branches operated by small single-market banks). (iv) The average
share of market branches owned collectively by LPOMBs increased
substantially from 1996 to 2003 (from 13.9% to 20.3% in rural mar-
kets, and from 25.5% to 45.7% in urban markets), but the average
aggregate share of market branches owned by LNPOMBs declined
during this same time period (from 4.7% to 1.7% in rural markets,
and from 35.1% to 21.1% in urban markets).
5. Results
We estimate Eq. (1) separately for banks operating in rural and
urban banking markets. HHI is scaled so that its value ranges from
0 to 1, rather than from 0 to 10,000. The results of these estima-
tions, using two different profit measures (ROA and ROE), are pre-
sented in Table 3. All models include bank fixed effects and year
fixed effects.
Looking first at the results for banks operating in rural markets
(columns 1 and 2), we find similar results for the two profit mea-
sures (keeping in mind that the average value of ROE is about 10
times the average value of ROA). Consistent with expectations,
the estimated coefficient on HHI is positive and statistically signif-
icant, indicating that banks operating in more highly concentrated
Table 1
Variable definitions
ROA Return on assets = income before extraordinary items and other
adjustments divided by total assets, for observed bank (%)
ROE Return on equity = income before extraordinary items and other
adjustments divided by total equity capital, for observed bank (%)
HHI Deposit-based Herfindahl–Hirschman index for market
SIZE Total assets of observed bank (thousands of dollars)
ln SIZE Natural logarithm of total assets of observed bank
LPOMBSHR Share of market branches owned by large primarily-out-of-market
banks
LNPOMBSHR Share of market branches owned by large, not primarily-out-of-
market banks
SPOMBSHR Share of market branches owned by small primarily-out-of-market
banks
POP Market population (thousands)
ln POP Natural logarithm of market population
PCI Market per capita income (thousands of dollars)
BRSHARE Share of market branches owned by observed bank
SCORP Dummy variable equal to one if observed bank is an S-corporation
and zero otherwise
268 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271

Table 2
Mean values of variables by market type and year

1996 1997 1998 1999 2000 2001 2002 2003

Rural markets
ROA (%) 1.178 1.200 1.173 1.131 1.159 1.055 1.131 1.085
ROE (%) 11.091 11.055 10.643 10.521 10.971 9.495 10.241 9.799
HHI 0.260 0.260 0.260 0.259 0.257 0.258 0.258 0.258
SIZE ($ thousand) 48,980 51,676 53,211 55,412 57,468 58,894 62,654 65,991
LPOMBSHR 0.139 0.149 0.156 0.170 0.183 0.192 0.202 0.203
LNPOMBSHR 0.047 0.040 0.039 0.037 0.034 0.027 0.019 0.017
SPOMBSHR 0.111 0.118 0.124 0.129 0.137 0.144 0.150 0.158
POP (thousands) 26.51 26.62 26.68 26.54 26.68 26.73 27.08 27.60
PCI ($ thousand) 18.92 19.68 20.55 21.05 22.04 22.80 22.95 24.26
BRSHARE 0.195 0.194 0.193 0.193 0.191 0.191 0.190 0.189
SCORP 0.080 0.079 0.158 0.198 0.243 0.292 0.325 0.349
Urban markets
ROA (%) 1.129 1.135 1.093 1.024 1.041 0.937 0.978 0.952
ROE (%) 11.974 11.943 11.527 11.182 11.453 9.946 10.363 10.034
HHI 0.119 0.121 0.122 0.123 0.121 0.120 0.120 0.124
SIZE ($ thousand) 102,850 111,336 119,486 129,344 134,839 142,544 146,950 157,453
LPOMBSHR 0.255 0.286 0.328 0.360 0.394 0.419 0.447 0.457
LNPOMBSHR 0.351 0.329 0.293 0.272 0.252 0.232 0.215 0.211
SPOMBSHR 0.027 0.028 0.032 0.033 0.033 0.036 0.037 0.040
POP (thousands) 1996 2064 2109 2140 2146 2168 2216 2208
PCI ($ thousand) 24.64 25.87 27.53 28.63 30.53 31.26 31.70 32.41
BRSHARE 0.020 0.020 0.020 0.020 0.020 0.019 0.018 0.018
SCORP 0.062 0.055 0.108 0.137 0.148 0.174 0.192 0.208

0.6 tion explaining ROA, but positive and statistically insignificant in

Share of Market Branches

0.5 the equation explaining ROE.

The coefficients on LPOMBSHR, LNPOMBSHR and SPOMBSHR
0.4
are all negative, highly significant, and of roughly similar magni-
0.3 tudes.14 Also, the estimated coefficients on the interactions of ln SIZE
0.2 with LPOMBSHR, LNPOMBSHR and SPOMBSHR are all positive and
0.1
highly significant, and in each case the magnitude of the coefficient
on the interaction term is approximately one-tenth the magnitude of
0
the coefficient on the share term alone.
1996 1997 1998 1999 2000 2001 2002 2003
An interesting distinction, however, occurs between the coef-
Year
ficients on the interactions of HHI with LPOMBSHR and SPO-
LPOMBSHR LNPOMBSHR SPOMBSHR SSMBSHR
MBSHR, on the one hand, and LNPOMBSHR, on the other hand.
Fig. 1. Rural market branch shares. In this figure, LPOMBSHR is the average share of
While the estimated coefficients on HHI  LPOMBSHR and
market branches operated by large, primarily-out-of-market banks; LNPOMBSHR is HHI  SPOMBSHR are negative and significant, the estimated
the average share of market branches operated by large, not primarily-out-of- coefficients on HHI  LNPOMBSHR are far from statistically sig-
market banks; SPOMBSHR is the average share of market branches operated by nificant. As noted above, the prediction of negative relationships
small, primarily-out-of-market banks; and SSMBSHR is the average share of market
between SSMB profitability and both HHI  LPOMBSHR and
branches operated by small single-market banks.
HHI  SPOMBSHR rests on the proposition that primarily-out-
of-market banks (defined here as those banks that derive less
0.5 than 30% of their deposits from the observed market) charge
Share of Market Branches

prices that do not respond (or respond very little) to competitive

0.4 conditions in the observed market. One would not expect this to
0.3 be the case for large banks that derive a substantial share of
their deposits (in this case, more than 30%) from the observed lo-
0.2 cal market. Thus, this difference in results seems to support the
0.1 view that primarily-out-of-market banks behave differently than
substantially in-market banks, when it comes to setting prices.
0 The negative coefficients on the interactions between HHI and
1996 1997 1998 1999 2000 2001 2002 2003
both LPOMBSHR and SPOMBSHR also suggest that an increased
Year
presence of primarily-out-of-market banks reduces the strength
LPOMBSHR LNPOMBSHR SPOMBSHR SSMBSHR of the relationship between local market concentration and the
ability of single-market banks to exercise market power. The
Fig. 2. Urban market branch shares. In this figure, LPOMBSHR is the average share
weakening of the links between market structure, conduct, and
of market branches operated by large, primarily-out-of-market banks; LNPOMBSHR
is the average share of market branches operated by large, not primarily-out-of- performance in local banking markets has potentially important
market banks; SPOMBSHR is the average share of market branches operated by implications for the competitive analysis of bank merger applica-
small, primarily-out-of-market banks; and SSMBSHR is the average share of market
branches operated by small single-market banks.

rural banking markets earn higher rates of return. The estimated 14

We cannot reject the hypothesis that these three coefficients are equal to each
coefficient on ln SIZE is negative and highly significant in the equa- other.
 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271 269

Table 3 tive or, in some cases, negative.16 Our finding of a positive effect of
Determinants of small single-market bank profitability the presence of large primarily-out-of-market banks on the profit-
Dependent variable Market type ability of an average rural market SSMB is consistent with the results
Rural Urban reported by Pilloff (1999), the only previous paper that we know of
to examine this question in a rural market context.
(1) ROA (2) ROE (3) ROA (4) ROE
We also find evidence of a negative relationship between mar-
Intercept 2.718*** 25.821*** 4.833** 42.647 ket size, as measured by the log of population, and small single-
(4.40) (2.93) (2.02) (1.64)
HHI 0.236* 2.461** 0.241 10.444
market bank profitability, and a positive relationship between
(1.92) (2.01) (0.34) (1.36) per capita income and SSMB profitability. We find no significant
ln SIZE 0.168*** 0.270 0.088* 2.042*** relationship between an SSMB’s (lagged) share of market branches
(5.24) (0.84) (1.79) (3.82) and its profitability in rural banking markets. Finally, as expected,
LPOMBSHR 2.648*** 22.721*** 0.873 12.677
we find that banks that are organized as S-Corporations report sig-
(5.28) (4.54) (1.21) (1.62)
LNPOMBSHR 2.356*** 17.276** 1.488* 20.972** nificantly higher profits than do other banks.
(3.44) (2.53) (1.87) (2.43) The results for SSMBs operating in urban markets (columns 3
SPOMBSHR 1.959*** 19.173*** 3.391* 19.146 and 4) are quite different from our rural market findings. Unlike
(4.07) (3.99) (1.65) (0.86) rural markets, in urban markets we find no significant relationship
HHI*LPOMBSHR 0.579** 8.451*** 0.435 16.647
(2.06) (3.02) (0.45) (1.60)
between market concentration (HHI) and small single-market bank
HHI*LNPOMBSHR 0.587 3.628 1.218 21.044* profits. This may reflect the fact that urban markets are generally
(1.25) (0.77) (1.14) (1.81) far less concentrated than rural markets, with the vast majority
HHI*SPOMBSHR 0.397* 4.511** 0.638 1.554 of observations occurring in markets with HHI values below 0.18
(1.74) (1.98) (0.25) (0.06)
(measured on a scale of 0–1), the Department of Justice’s threshold
ln SIZE*LPOMBSHR 0.267*** 2.386*** 0.067 0.809
(5.76) (5.16) (1.10) (1.21) for a highly concentrated market. Also unlike rural markets, the
ln SIZE*LNPOMBSHR 0.232*** 1.660*** 0.114* 1.504** estimated coefficient on ln SIZE is positive and statistically signifi-
(3.61) (2.59) (1.68) (2.05) cant, indicating that, in urban markets, larger SSMBs tend to be
ln SIZE*SPOMBSHR 0.199*** 1.943*** 0.295 1.610 more profitable than smaller ones.
(4.36) (4.27) (1.64) (0.82)
ln POP 0.116 2.065** 0.368** 3.999**
The estimated coefficients on LPOMBSHR, LNPOMBSHR and
(1.32) (2.35) (2.16) (2.17) SPOMBSHR are all negative, as they were in rural markets; how-
PCI 0.007** 0.093*** 0.017*** 0.139*** ever, only the coefficient on LNPOMBSHR is significantly different
(2.39) (3.37) (4.13) (3.12) from zero in both equations. The coefficient on LPOMBSHR is not
BRSHARE 0.013 0.194 1.230** 15.266**
significantly different from zero in either equation, and the coeffi-
(0.14) (0.20) (2.00) (2.29)
SCORP 0.365*** 3.674*** 0.399*** 4.436*** cient on SPOMBSHR is marginally significant in the equation
(30.28) (30.58) (20.97) (21.56) explaining ROA but insignificant in the equation explaining ROE.
N 18,977 18,977 14,725 14,725 The estimated coefficients on the interactions between each of
R2 (within) 0.083 0.086 0.055 0.062 these market share variables and ln SIZE are all positive, but only
the interaction between ln SIZE and LNPOMBSHR is significant.
Note: Bank and year fixed effects are included. T-statistics are in parentheses. *, **,
and *** denote significance at the 0.10, 0.05, and 0.01 levels, respectively. The coefficients on the interactions between HHI and the market
share variables are statistically insignificant, with the exception
of the positive coefficient on the interaction with LNPOMBSHR in
tions, as primarily-out-of-market banks become increasingly
the ROE equation. For an urban market SSMB of about average size
prevalent.
for our sample (total assets of $130 million) operating in a market
Because LPOMBSHR, LNPOMBSHR, and SPOMBSHR each enter
with about average concentration (HHI of 0.12), the net effect of an
the estimated equation by themselves and interacted with both
increase in LPOMBSHR, LNPOMBSHR or SPOMBSHR on profitability
HHI and ln SIZE, the estimated effect of a given increase in
is not significantly different from zero. Thus, there is little evidence
LPOMBSHR, LNPOMBSHR or SPOMBSHR on a small single-market
that an increased presence of large or primarily-out-of-market
bank’s profitability depends on the SSMB’s size and the level of
firms has any impact on the profitability of small single-market
concentration in its market. For a rural market SSMB of about aver-
banks in urban banking markets.
age size for our sample (total assets of $57 million) operating in a
Two previous studies, Whalen (2001) and BDGW (2007), have
market with about average concentration (HHI of 0.26 on a scale of
examined the effects of the presence of large, multi-market bank-
0–1), an increase in the value of LPOMBSHR by 0.1 (10 percentage
ing organizations on the profitability of small single-market banks
points) would be associated with a 1.2 basis point increase in ROA
operating in urban markets. Whalen (2001) finds a negative rela-
and a 12.0 basis point increase in ROE. For the same SSMB, an in-
tionship between the market share of multi-state bank holding
crease in the value of SPOMBSHR by 0.1 would be associated with
companies and small bank profitability in Metropolitan Statistical
a 1.2 basis point increase in ROA and a 9.2 basis point increase in
Areas during the 1995–1999 period; BDGW find that, in the
ROE. These effects are significantly different from zero at the 0.05
1990s, increases in the market shares of large single-market banks,
level or better. In contrast, the changes in SSMB profitability asso-
large multi-market banks, or small multi-market banks in urban
ciated with an increase in the value of LNPOMBSHR by 0.1 are not
markets are associated with significantly lower profitability for
statistically significant.15 For larger SSMBs or SSMBs operating in
SSMBs. It is unclear why our results differ from those obtained in
less concentrated markets, the profitability effects associated with
these earlier studies; however differences in the time periods cov-
an increased presence of LPOMBs or SPOMBs would be more
ered, the definitions of multi-market and small single-market
strongly positive. However, for smaller SSMBs or those operating
in more highly concentrated markets, the effects would be less posi-
16
For example, for an SSMB with total assets less than $36 million operating in a
rural market with average concentration, or an SSMB of average size operating in a
market with HHI greater than 0.47, an increase in LPOMBSHR would be associated
with a decline in ROA. Within our sample, the rural market HHIs range from 0.07 to
15
The magnitudes of these changes are +0.3 basis points for ROA and 0.4 basis 0.96, with a standard deviation of 0.13, while rural market SSMB assets range from
points for ROE. $1.1 million to $654 million, with a standard deviation of $50 million.
270 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271
banks, and model specification are all potential contributing fac-
tors. Definitional and specification differences between our model
and Whalen’s are substantial and likely account for the differences
in findings between the two studies. Differences in the time period
covered are likely the primary source of discrepancies between our
results and those of BDGW. Consistent with this explanation,
BDGW report that the negative profitability effect that they esti-
mate for the 1990s ‘‘is principally concentrated in the early
1990s”, a period which predates that examined in our paper.17
Estimated coefficients on the log of market population are neg-
ative and significant, and estimated coefficients on per capita in-
come are positive and significant, as was true for rural markets.
We also find a positive relationship between an SSMB’s (lagged)
share of market branches and both its ROA and its ROE, and a
strong positive relationship between S-Corporation status and
both ROA and ROE.
6. Conclusion
Large, geographically diversified banking organizations have
become increasingly important in the United States in recent
years. As a result, an increasing number of small single-market
banks find themselves facing competition from large firms that
operate primarily outside of their local banking market. A grow-
ing body of evidence suggests that large geographically diversi-
fied banking organizations behave differently from small single-
market banks in deciding what prices to charge for the products
and services they offer. Because of its relevance to both antitrust
policy and the future viability of community banks, we examine
in this paper the relationship between the profitability of small
single-market banks and the market presence of banks that are
large or primarily-out-of-market. In order to disentangle the ef-
fects of size from the effects of geographic focus, we include in
our analysis measures of the market presence of large primar-
ily-out-of-market banks, large banks that are not primarily-out-
of-market, and small primarily-out-of-market banks. We pay
particular attention to the interactions of these measures with
market concentration, since it is in the coefficients of these inter-
action terms that recent literature suggests the difference
between large primarily-out-of-market and large in-market
competitors should be observed.
These relationships are examined using annual data for a large
sample of small single-market banks over the period from 1996
through 2003. All estimated relationships include both bank and
year fixed effects. Overall, our empirical results suggest that an in-
creased presence of large primarily-out-of-market banks is associ-
ated with a significant change in the profitability of small single-
market banks operating in rural, but not urban, banking markets,
with the sign and magnitude of the effect depending on the size
of the SSMB and the local banking market concentration. For an
average-sized SSMB operating in a rural banking market with aver-
age concentration, the sign of this relationship is positive. We find
similar effects attributable to increased presence of small primar-
ily-out-of-market banks, but not large banks that do not operate
primarily outside of the local banking market in which the SSMB
is located.
We also find that an increased presence of large or small pri-
marily-out-of-market banks in rural banking markets reduces the
positive effect of an increase in concentration on small single-mar-
ket bank profits; however, we fail to find a similar statistically sig-
nificant effect for the presence of large banks that do not meet our
primarily-out-of-market bank definition. This difference is pre-
cisely what one would expect if the prices that primarily-out-of-
17
Berger et al. (2007, p. 364).
market banks offer are less responsive to local market conditions
(i.e., differences in concentration) than are the prices of banks that
derive a substantial portion of their business from the local bank-
ing market.
Our finding that an increased presence of primarily-out-of-mar-
ket banks in rural banking markets reduces the positive effect of an
increase in concentration on SSMB profits suggests that the rela-
tionship between local market structure and bank behavior and
performance may be weakening over time. This, in turn, has poten-
tially important implications for bank merger policy, which has
traditionally relied upon the relevance of the structure–conduct–
performance paradigm. In particular, our results suggest that in
assessing the likely competitive effects of a proposed merger or
acquisition within a particular local banking market, it may be
appropriate for antitrust authorities to take into account the share
of local market branches operated by primarily out-of-market
banks.
Our finding that an increase in the presence of large or primar-
ily-out-of-market banking organizations in rural markets is associ-
ated with either an increase or a reduction in the profitability of
small single-market banks, depending on the SSMB’s size and the
concentration of the market, is new. For all but the very smallest
SSMBs or SSMBs operating in very highly concentrated markets,
our results suggest that the profitability of SSMBs in rural markets
rises with an increase in the presence of large or small primarily-
out-of-market competitors. This result, combined with our finding
of no effect of the presence of large or small primarily-out-of-mar-
ket banking organizations on the profitability of urban market
SSMBs, should mitigate concerns raised by previous studies
regarding the viability of small single-market banks in an era of
multi-market banking.
Acknowledgement
We thank Onka Tenkean for outstanding research assistance on
this project and two anonymous referees for helpful suggestions.
This paper was originally submitted to Professor Giorgio Szego
on July 19, 2006 and was revised three times prior to submission
through EES.
References
Barros, P.P., 1999. Multimarket competition in banking, with an example from the
Portuguese market. International Journal of Industrial Organization 17, 335–
352.
Berger, A.N., Dick, A.A., Goldberg, L.G., White, L.J., 2007. Competition from large,
multimarket firms and the performance of small, single-market firms: Evidence
from the banking industry. Journal of Money, Credit, and Banking 39,
331–368.
Berger, A.N., Rosen, R.J., Udell, G.F., 2007. Does market size structure affect
competition? The case of small business lending. Journal of Banking and
Finance 31, 11–33.
Critchfield, T., Davis, T., Davison, L., Gratton, H., Hanc, G., Samolyk, K., 2004. The
future of banking in America – Community banks: Their recent past, current
performance, and future prospects. Federal Deposit Insurance Corporation
Banking Review 16, 1–56.
Dick, A.A., 2008. Demand estimation and consumer welfare in the banking industry.
Journal of Banking and Finance 32, 1661–1676.
Hannan, T.H., 2006. Retail deposit fees and multimarket banking. Journal of Banking
and Finance 30, 2561–2578.
Hannan, T.H., Prager, R.A., 2004. The competitive implications of multimarket bank
branching. Journal of Banking and Finance 28, 1889–1914.
Hannan, T.H., Prager, R.A., 2006. Multimarket bank pricing: An empirical
investigation of deposit interest rates. Journal of Economics and Business 58,
256–272.
Heitfield, E.A., 1999. What do interest rate data say about the geography of retail
banking markets? The Antitrust Bulletin 44, 333–347.
Kiser, E.K., 2004. Modeling the whole firm: The effects of multiple inputs and
financial intermediation on bank deposit rates. Finance and Economics
Discussion Series 2004–07, Board of Governors of the Federal Reserve System.
Park, K., Pennacchi, G., in press. Harming depositors and helping borrowers: The
disparate impact of bank consolidation. Review of Financial Studies,
doi:10.1093/rfs/hhn051.
 T.H. Hannan, R.A. Prager / Journal of Banking & Finance 33 (2009) 263–271 271

Pilloff, S.J., 1999. Does the presence of big banks influence competition in local Whalen, G., 2001. The impact of the growth of large, multistate banking
markets? Journal of Financial Services Research 15, 159–177. organizations on community bank profitability. Economic and Policy Analysis
Radecki, L.J., 1998. The expanding geographic reach of retail banking markets. Working Paper 2001–5. Office of the Comptroller of the Currency.
Economic Policy Review 4, 15–33.