Harming depositors and helping borrowers: The disparate impact of bank consolidation

Kwangwoo Park, George Pennacchi

Research output: Contribution to journalReview articlepeer-review


A model of multimarket spatial competition is developed where small, single-market banks compete with large, multimarket banks (LMBs) for retail loans and deposits. Consistent with empirical evidence, LMBs are assumed to set retail interest rates uniformly across markets, have different operating costs, and have access to wholesale funding. If LMBs have significant funding advantages that offset potential loan operating cost disadvantages, then market-extension mergers by LMBs promote loan competition, especially in concentrated markets. However, such mergers reduce retail deposit competition, especially in less concentrated markets. Prior empirical research and our own analysis of retail deposit rates support the model's predictions.

Original languageEnglish (US)
Pages (from-to)1-40
Number of pages40
JournalReview of Financial Studies
Issue number1
StatePublished - Jan 2009

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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