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Efficient banking under interstate branching

Author

Listed:
  • Joseph P. Hughes
  • William W. Lang
  • Loretta J. Mester
  • Choon-Geol Moon

Abstract

Nationally chartered banks will be allowed to branch across state lines beginning June 1, 1997. Whether they will depends on their assessment of the profitability of such a delivery system for their services and on their preferences regarding risk and return. The authors investigate the probable effect of interstate branching on banks' risk-return tradeoff, accounting for the endogeneity of deposit volatility. If interstate branching improves the risk-return tradeoff banks face, banks that branch across state lines may choose a higher level of risk in return for higher profits. The authors find distinct efficiency gains due to geographic diversity.

Suggested Citation

  • Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 1996. "Efficient banking under interstate branching," Working Papers 96-9, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:96-9
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    Keywords

    Branch banks; Interstate banking;

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