Deregulation, Intensity of Competition, Industry Evolution and the Productivity Growth of US Commercial Banks

Abstract

This paper studies the influence of the evolution in intrastate and interstate deregulations on the total factor productivity growth of the US commercial banking sector for the 1971-1995 period. We consider intrastate branching, intrastate multibank holding company (MBHC), interstate multibank holding company, and interstate multibank holding company de novo branching deregulations. Results indicate that long-standing banking restrictions affected negatively banks' productivity growth and that relaxing restrictions on intrastate branching expansion has a positive long-run influence upon banks' productivity growth. The effect of interstate MBHC deregulations on banks' productivity growth is largely short-run and arises from regional reciprocity agreements. Interstate MBHC de novo branching deregulations have a negative long-run effect on banks' productivity growth.

Keywords: Total Factor Productivity Growth, MBHC Regulations, Bank Regulations

JEL Classification: D24, C23, E44, G21, G28, K23