The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
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The Expanding Geographic Reach of Retail Banking Markets
June 1998Volume 4, Number 2
JEL classification: L4, G21, D40
Author: Lawrence J. Radecki
In the view of most policymakers and economists, competition in retail banking takes place in local markets the size of a single county or metropolitan area. This article presents evidence that the locus of banking competition has in recent years shifted to larger geographic arenas. The author's review of 1997 survey data reveals that many banks set uniform rates for both deposits and retail loans across an entire state or broad regions of a large state. Regression analysis of the relationship between retail deposit rates and measures of market concentration further supports this expansion in market size: the clear relationship that earlier studies detected between individual banks' deposit rates and measures of concentration at the local level is no longer evident, while a relationship does emerge at the state level.