Working Paper
Bank Mergers and Deposit Interest Rate Rigidity
In this paper I revisit the debate on the impact of bank and market characteristics on the rigidity of retail bank interest rates. Whereas existing research in this area has been exclusively concerned with static measures of bank and market structure, I adopt a dynamic approach which explores the rigidity effects of the changes of bank and market structure generated by bank mergers. I find that bank mergers significantly affect the frequency of changes to deposit rates. In particular, the probability of adjusting deposit rates in response to shocks in money market rates significantly drops after mergers that involve large target banks and after mergers that generate a substantial geographical expansion of bank operations. These effects, however, materialize only after a "transition" period characterized by very frequent changes of the deposit rates.
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
Dinger, Valeriya. 2011. “Bank Mergers and Deposit Interest Rate Rigidity .” Federal Reserve Bank of Cleveland, Working Paper No. 11-31. https://doi.org/10.26509/frbc-wp-201131
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