The Profitability of Small, Single-Market Banks in an Era of Multimarket Banking

Abstract

This paper examines the relationship between multimarket bank presence and the profitability (and therefore viability) of small, single-market banks. We find that increased presence of multimarket banks is associated with a significant reduction in the profitability of small, single-market banks operating in rural banking markets, but not of those operating in urban markets. We explore this relationship by breaking single-market bank profits down into several components in order to shed light on the mechanisms through which multimarket bank presence might influence the profitability of single-market banks.

Keywords: Banks, competition, pricing

JEL Classification: G21, L10