Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241232 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-9
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We show that U.S. banks price deposits almost uniformly across their branches and that this pricing practice is crucial to explain the deposit rate dynamics following bank mergers. We find a strong and sharp post-merger convergence between the deposit rates of the acquired branches and the median deposit rate of the acquirer. This pattern is almost fully explained by adjustments in the deposit rates of the acquired branches, irrespective of whether their rates were above or below those practiced by the acquirer. Acquired branches lose deposits and local market share, especially when they decrease their rates due to uniform pricing. Local competitors respond to changes in deposit rates at the acquired branches by adjusting their own deposit rates in the same direction. We find that pre-merger differences in deposit rates between merged entities explain more of the post-merger evolution of deposit rates than the predicted changes in local market concentration induced by the merger. This result indicates that competition authorities would be well advised to review the potential impact of premerger pricing differences in evaluating a merger within an industry with strong uniform pricing practices.
Subjects: 
Financial institutions
Financial system regulation and policies
Market structure andpricing
JEL: 
D4
G20
G21
G28
G34
L11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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