Geographic integration of bank deposit markets and restrictions on interstate banking: A cointegration approach

Several previous studies in the literature have examined the degree of market integration for different types of banking products. All of these previous studies have used conventional linear regression analysis to test their market integration hypothesis. This paper employs the method of cointegrati...

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Bibliographic Details
Published in:Journal of economics and business 1997-07, Vol.49 (4), p.335-346
Main Authors: Jackson, William E., Eisenbeis, Robert A.
Format: Article
Language:English
Subjects:
Bank deposits
Banking industry
Cointegration
Deposit markets
Economic models
Economic theory
Interstate Banking
Regression analysis
Studies
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Summary:Several previous studies in the literature have examined the degree of market integration for different types of banking products. All of these previous studies have used conventional linear regression analysis to test their market integration hypothesis. This paper employs the method of cointegration analysis—which is a superior method for testing the extent of market integration relative to conventional linear regression analysis—to test the hypothesis that consumer deposit rates from distinct geographically-defined markets behave as if they are independent versus the alternative that they are determined on a regional or national basis. Our results, similar to some of the regression-based analysis in the literature, suggest that consumer deposit markets are integrated, and are not primarily local in nature. Therefore, rationalizations of interstate branching restrictions based on these restrictions abilities to localize banking markets are incorrect.
ISSN:0148-6195
1879-1735
DOI:10.1016/S0148-6195(97)00009-X