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Working Paper

Bank Mergers and the Dynamics of Deposit Interest Rates

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Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, we aim for a comprehensive empirical analysis of a bank merger’s impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 US banks with a monthly frequency for the time period 1997-2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the US. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger, bank, and local market features. An innovation of our work is the introduction of an econometric approach for estimating the change of the deposit rates given their rigidity.
02.01.2009ISSN 2573-7953 WP 08-06ROriginal Paper WP 08-06DOI 10.26509/frbc-wp-200806R
Keywords deposit rate dynamics, bank mergers, deposit rate rigidity
JEL Classification Codes G21, L11

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Craig, Ben R., and Valeriya Dinger. 2009. “Bank Mergers and the Dynamics of Deposit Interest Rates.” Federal Reserve Bank of Cleveland, Working Paper No. 08-06R. https://doi.org/10.26509/frbc-wp-200806R