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Assessing the Common Ownership Hypothesis in the US Banking Industry

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Abstract

The common ownership hypothesis (COH) states that firms with common shareholders, primarily large asset managers, compete less aggressively with each other. The U.S. banking industry is well suited to assess the common ownership hypothesis, because thousands of private banks without common ownership (CO) compete with hundreds of public banks with high and increasing levels of CO. This paper assesses the COH in the banking industry using more comprehensive ownership data than previous studies. In simple comparisons of raw deposit rate averages we document that the deposit rates of public banks are similar in markets where they share common shareholders with their rival and in markets where they do not. Panel regressions of deposit rates on the profit weights implied by the COH are generally not consistent with the COH if bank-quarter FEs are included. These estimates are “precise zeros” with 95% CIs suggesting that the threefold rise in CO among public banks between 2005 and 2022 moved their deposit rates by less than a quarter of a basis point in either direction. To assess the COH along non-price dimensions we also estimate the effect of CO on deposit quantities, and find that the estimates are also not consistent with the COH.

Suggested Citation

  • Jacob P. Gramlich & Serafin J. Grundl, 2024. "Assessing the Common Ownership Hypothesis in the US Banking Industry," Finance and Economics Discussion Series 2024-022r1, Board of Governors of the Federal Reserve System (U.S.), revised 12 Jul 2024.
    • Handle: RePEc:fip:fedgfe:2024-22
    DOI: 10.17016/FEDS.2024.022r1
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    References listed on IDEAS

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    1. José Azar & Martin C. Schmalz & Isabel Tecu, 2018. "Anticompetitive Effects of Common Ownership," Journal of Finance, American Finance Association, vol. 73(4), pages 1513-1565, August.
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    More about this item

    Keywords

    Bank competition; Common ownership;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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