A critical level of commercial bank concentration: An application of switching regressions

This paper reports on a study of a critical level of concentration in banking markets using switching regressions as the proper estimating technique. The technique employs a search procedure that yields maximum likelihood estimates of thecritical concentration level and of the coefficients of the co...

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Bibliographic Details
Published in:Journal of banking & finance 1980-01, Vol.4 (4), p.353-369
Main Authors: McCall, Alan S., Peterson, Manfred O.
Format: Article
Language:English
Online Access:Get full text
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Summary:This paper reports on a study of a critical level of concentration in banking markets using switching regressions as the proper estimating technique. The technique employs a search procedure that yields maximum likelihood estimates of thecritical concentration level and of the coefficients of the concentration-performance relationship. A threshold level of concentration appears to exist, above which the impacts of changes in concentration are the greatest. These results suggest that scarce bank regulatory resources be directed toward relatively more concentrated markets where the regulatory effort would seem to have the greatest impact. The results conflict with the findings of the few previous studies of this relationship in banking, presumably because they employed inappropriate estimating techniques.
ISSN:0378-4266
1872-6372
DOI:10.1016/0378-4266(80)90014-X