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Rising Bank Concentration

Staff Report 594 | Published March 2, 2020

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Dean Corbae University of Wisconsin - Madison and NBER
Pablo D'Erasmo Federal Reserve Bank of Philadelphia
Rising Bank Concentration


Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising concentration occurs along a transition path between two steady states after branching costs decline.

Published in _Journal of Economic Dynamics and Control_ (vol. 115, June 2020, article 103877),