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FinanceandEconomicsDiscussionSeries

FederalReserveBoard,Washington,D.C.

ISSN1936-2854(Print)

ISSN2767-3898(Online)

AssessingtheCommonOwnershipHypothesisintheUSBankingIndustry

SerainGrundlandJacobGramlich

2024-022

Pleasecitethispaperas:

Grundl,Serain,andJacobGramlich(2024).“AssessingtheCommonOwnershipHypothesisintheUSBankingIndustry,”FinanceandEconomicsDiscussionSe-ries2024-022.Washington:BoardofGovernorsoftheFederalReserveSystem,

/10.17016/FEDS.2024.022

.

NOTE:StafworkingpapersintheFinanceandEconomicsDiscussionSeries(FEDS)arepreliminarymaterialscirculatedtostimulatediscussionandcriticalcomment.TheanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersoftheresearchstafortheBoardofGovernors.ReferencesinpublicationstotheFinanceandEconomicsDiscussionSeries(otherthanacknowledgement)shouldbeclearedwiththeauthor(s)toprotectthetentativecharacterofthesepapers.

1

AssessingtheCommonOwnershipHypothesisinthe

USBankingIndustry

SerafinGrundlandJacobGramlich*

November17,2023

Abstract

TheU.S.bankingindustryiswellsuitedtoassessthecommonownershiphypothesis(COH),becausethousandsofprivatebankswithoutcommonownership(CO)competewithhundredsofpublicbankswithhighandincreasinglevelsofCO.Thispaperas-sessestheCOHinthebankingindustryusingmorecomprehensiveownershipdatathanpreviousstudies.Insimplecomparisonsofrawdepositrateaverageswedocumentthat(i)privatebanksdooffersubstantiallymoreattractivedepositratesthanpublicbanks,but(ii)thedepositratesofpublicbanksaresimilarinmarketswithoutCOwhereasinglepublicbankcompetesonlywithprivaterivals,andinmarketswithCOwheremultiplepublicbankscompetewitheachother.PanelregressionsofdepositratesontheprofitweightsimpliedbytheCOHaregenerallyconsistentwiththeCOHifonlyquar-terFEs(withoutothercontrols)areincludedbutnotifbank-quarterFEsareincluded.Estimateswithbank-quarterFEsare“precisezeros”with95%CIssuggestingthatthethreefoldriseinCOamongpublicbanksbetween2005and2022movedtheirdepositratesbylessthanaquarterofabasispointineitherdirection.ToassesstheCOHalongnon-pricedimensionswealsoestimatetheeffectofCOondepositquantities,andfindthattheestimatesarealsonotconsistentwiththeCOH.

*BoardofGovernorsoftheFederalReserveSystem,serafin.j.grundl@,jacob.gramlich@.Thispaperextendsandsupersedes“TheEffectofCommonOwnershipintheU.S.BankingIndustry”(2017).Theanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersofthestaff,bytheBoardofGovernors,orbytheFederalReserveBanks.RebeccaJorgensen,NadiaWallace,MeherIslam,LoganSchultheis,SamBlattner,HelenWillis,AdamTucker,NicholasHansenandStefanKassemprovidedoutstandingresearchassistance.WethankJoseAzar,DanO’Brien,JenniferDlugosz,NateMiller,MartinSchmalz,GloriaSheuandRobinPragerforhelpfulconversations,andTraciMachandhercolleaguesforhelpwiththeS&PGlobal/RateWatchdata.

1Introduction

TheU.S.bankingindustryiswellsuitedtoassessthecommonownershiphypothesis(COH),because,unlikeinmostotherindustries,therearemanypublicandprivatebanks(over500and4,000,respectively)thatcompetewitheachother.Thiscreatessubstantialvariationincommonownership(CO).WhilethereisgenerallynoCOamongprivatebanks,publicbankshaveexperiencedalargeincreaseinCObetween2005and2022.TheCOHpredictsthattheriseinCOamongpublicbankschangedtheirobjectivefunctionssuchthattheyshouldcaremoreaboutcompetitorswhoareheldbythesameshareholders.Themodelby

O’Brienand

Salop

(2000)impliesthattheaverageweightpublicbanksplaceintheirobjectivefunctions

onrivalprofitsincreasedroughlythreefoldbetween2005and2022.Incontrast,theCOHpredictsthatprivatebanksshouldmaximizeonlytheirownprofitsandthattheirobjectivefunctionshaveremainedunchanged.

Importantly,theriseinCOamongpublicbankscreatesnotonlyvariationinCObetweenbanks(especiallybetweenprivateandpublicbanks),butalsowithinindividualpublicbanksacrossgeographicmarkets.Forinstance,inbankingmarketswithmultiplepublicbanksCOgenerallyincreasedsubstantially,butinbankingmarketswhereasinglepublicbankcompeteswithprivatebanksitdidnot.

BankingisnotonlyagoodlaboratorytotesttheCOH,butisalsoanindustryinwhichCOisofparticularpolicyrelevance.ShareholdershavetonotifytheFederalReserveiftheirownershipshareinabankexceeds10percent(ChangeinBankControlAct(CIBCA))andtheFederalReservecanobjecttosuchaCIBCAnoticeoncompetitivegrounds.ThebankingindustrywasalsospecificallymentionedinPresidentBiden’s

executiveorderoncompetition

.1

ThispaperassessestheCOHinbankingusingmorecomprehensiveownershipdatathanpreviousstudies.UsuallystudiesontheCOHusedatafromSECfiling13-F,whichmustbefiledbyinstitutionalinvestmentmanagerswith$100millionormoreinassetsundermanagement.Theholdingsoflargeinstitutionalinvestmentmanagerstendtobediversifiedwithinindustriessotheyoftenownsharesofcompetingfirms,whichresultsinhighmeasuredCO.Thispaperusesnotonlyownershipdatafromthe13FfilingsbutalsofromotherfilingssuchasSECforms3,4and5(“insiderforms”),SECformDEF14A(“definitiveproxystatement”),andSECforms13Dand13G(“beneficialownershipreports”).Thesefilingsalsocaptureownershipbysmallerinstitutionalshareholdersandbynon-institutionalshareholderswhotendtobelessdiversifiedandthuslessentheCOincentivespredictedbythe

O’Brien

1ThisisnottosaythatCOisofnopolicyrelevanceinotherindustries.Forinstance,therecentdraft

ofthenewmergerguidelinesbytheFederalTradeCommissionandtheDepartmentofJusticestatesthat

“Acquisitionsofpartialcontrolorcommonownershipmayinsomesituationssubstantiallylessencompetition”

(Guideline12).

2

3

andSalop

(2000)model

.2

Webeginwithacomparisonoftheaveragedepositratesofferedbypublicandprivatebanks.Wefindthatprivatebanksoffersubstantiallymoreattractivedepositratesforalldepositproductsatalltimesfrom2005to2022.ThereishowevernoapparentwideningofthegapaswouldbepredictedbytheriseinCOamongpublicbanks.Therategapbetweenpublicandprivatebankscouldbeduetootherdifferencesbetweenthebanks,suchaspublicbanks’widervarietyofproductsandservices,largerbranchandATMnetworks,orbetteronlinebanking.

Wethencomparethedepositratesofpublicbanksingeographicbankingmarketswithmultiplepublicbanks(“COmarkets”)tomarketswhereasinglepublicbankcompetesonlywithprivaterivals(“noCOmarkets”).TheCOHpredictsthatpublicfirmsshouldcompeteasaggressivlyasprivatefirmsinmarketswithnoCO.Wefind,however,thattheratesofferedbypublicbanksin“noCOmarkets”arefarlessattractivethantheratesofprivatebanksandverysimilartotheratesofpublicbanksin“COmarkets”.Thereisnosubstantialdifferenceintheaveragelevelofpublicbankratesbetween“noCOmarkets”and“COmarkets.”Theratesalsodon’tdivergeascommonownershipamongpublicbanksincreases.ThesepatternsarenotconsistentwiththeCOHandsuggeststhattherategapbetweenprivateandpublicbanksisnotduetoCO,butduetootherdifferencesbetweenpublicandprivatebanks.

Nextweturntoaregressionanalysis.Inourmainanalysiswedeviatefromtheapproachin

Azar,Schmalz,andTecu

(2018)and

Azar,Raina,andSchmalz

(2022),whichrelates

pricestogeneralizationsoftheHHIthataccountforCOandcrossownership

.3

WearguethatsuchanapproachinheritstheendogeneityproblemsofHHIregressions,becausetheHHIanditsgeneralizationsarefunctionsofquantities.Instead,weproposetoregresspricesandquantitiesontheweightsdescribinghowmuchfirmscareabouttheprofitsoftheircommonlyownedrivalsaccordingtothemodelby

O’BrienandSalop

(2000)

.

Inaspecificationthatonlyincludesquarterfixedeffectstoaccountforchangesinlevelofinterestrates,wefindthatbankswhocaremoreaboutrivalprofitsdo,indeed,setlessaggressivedepositinterestrates.ThisisconsistentwiththeCOHandthedepositrategapbetweenpublicandprivatebanksdescribedabove.ThelargestpointestimatesimplythattheriseinCOamongpublicbanksbetween2005and2022loweredtheirdepositratesby

2Thiseffecttendstobemoreimportantforsmallerpublicbanks,thatarenotlistedonanexchangebuttradedoverthecounter.Thesebanksoftenhavemodestownershipby13Ffilers,butbecausetheirmarketcapitalizationisfairlylowothershareholders–oftenmembersofthefamilythatusedtoowntheentirebankbeforeitwentpublic–canholdsizablepositions.Insomecasessuchshareholdersevenplayanimportantroleforlargerbanks,suchasinthecaseoftheappropriatelynamedHoldingfamilythatownsabout20%ofFirstCitizensBank.

3Werunsuchregressionsinarobustnesscheck.

4

morethan6basispoints

.4

Inspecificationswithbank-quarterfixedeffects,however,wenolongerfindstatisticallysignificanteffectsinlinewiththeCOH.Thelargesamplesizeandthefactthatthereissubstantialvariationwithinbank-quarterpairsacrossmarketsallowsustoestimate“precisezeros”.The95%confidenceintervalsimplythatthethreefoldincreaseinCOamongpublicbanksbetween2005and2022movedtheirdepositratesbylessthanaquarterofabasispointineitherdirection.Thecrucialdifferenceinthisspecificationisthatitusesonlywithin-bankvariationacrossbankingmarkets.OverallourfindingssuggestthatbanksdonotadjusttheirdepositratesmarketbymarketinaccordancewiththeCOH.

Onepotentialconcernwiththesefindingsisthatbanksdogenerallynotsetinterestratesateachbranchseparately,butinsteaddesignatea“ratesetter”branchforaparticularregionandratesforotherbranchesintheregionfollow.About10-12%ofallbranchesareratesetters.Weexplorewhetherourfindingsaredrivenbyuniformpricingbyrunningarobustnesscheckwhereonlyrate-setterbranchesareused.AsinthebaselineestimateswefindnoeffectofCOondepositratesifbank-quarterFEsareincluded,buttheconfidenceintervalsarewiderduetothesmallersamplesize

.5

Apotentialendogeneityconcernwiththesepanelregressionsisthatatleastsomeshare-holderscanchoosewhichparticularbankstoinvestin.Thereforeweconsideranidentificationstrategyspecificationthatisolatesvariationinprofitweightsdrivenbyvariationinthenum-beroflistedbanksinamarketandthegeneraltrendtowardsincreasedCO,butnotbyparticularshareholderchoices.Todothisweusethenumberoflistedbanksinamarketinteractedwithatimetrendasaninstrumentforprofitweights.Thebasicideaisthathowmanybanksinamarketarepublicisnotashareholderchoice.TheIVestimatesaresimi-lartothebaselinefindingsasallestimatearenegativeandstatisticallysignificantwithoutbank-quarterFEs,butnoestimatesremainstatisticallysignificantifbank-quarterFEsareadded.

FullyexplainingthenegativeassociationbetweenprofitweightsanddepositratesinspecificationsthatonlyincludequarterFEsisbeyondthescopeofthispaper.However,wedonotethatsimplycontrollingforthesizeofabank’sbranchnetwork(withoutbankFEs)eliminatesthenegativeassociationbetweenprofitweightsanddepositratesfornineoutoftendepositrates.

NextweexaminetheeffectofCOondepositquantities.Evenifbanksdonotchange

4Totalinterestbearingdepositsatpublicbanksexceed$10trillion.Thereforeevena1basispointchangeforalldepositinterestratesofpublicbankswouldresultinannualharmfordepositorsofmorethan$1billion,ormorethan$3perAmerican.

5Uniformpricingisnotexogenouslyimposedonbanks,butisachoice.TheprevalenceofuniformpricingcanbeviewedasevidenceagainsttheCOH,becausetheCOHpredictsthatbankobjectivefunctionsdiffersubstantiallyacrossmarketsanduniformpricingisthereforesub-optimal.

5

theirdepositinterestratesinaccordancewiththeCOH,itispossiblethatbanksadjusthow

fiercelytheycompetealongotherdimensions.ForinstanceCOcouldlowerservicequality,reducethevarietyofservicesabankoffers,orreducetheincentivetostealrivalcustomersviaadvertising.IfthiswerethecasewewouldexpectthatitresultsindepositlossesinmarketswherebankshavesignificantCOwiththeirrivals.InpanelregressionsofdepositquantitiesonprofitweightswefindeitherasmallpositiveeffectofCO,whichisnotconsistentwiththeCOH,orobtainapreciselyestimatedzeroeffect(dependingontheincludedfixedeffects).Thesefindingssuggestthatbanksdonotcompetelessaggressivelyinmarketswheretheysharesignificantcommonownerswiththeirrivals,neitherbyloweringdepositratesnoralongnon-pricedimensions.

LiteratureThispaperismostcloselyrelatedto

Azar,Raina,andSchmalz

(2022),which

findsthattheGHHI,ageneralizedversionoftheHHIthataccountsforcommonownershipandcrossownership,isstronglycorrelatedwithprices.TheGHHIisafunctionoftheweightsthatbanksplaceontheprofitsoftheirrivalsaccordingtotheCOH,andofmarketshares.Thereareseveralimportantdifferencesbetween

Azar,Raina,andSchmalz

(2022)

andthispaper.Mostimportantly,themainanalysisinthispaperrelatespricesdirectlytotheprofitweightsthatarepredictedbycommonownershiptheoryratherthantotheGHHI.WearguethatGHHIregressionsinheritthewellknownendogeneityproblemsofHHIregressions,becausetheHHIanditsgeneralizationsarefunctionsofmarketshares

.6

However,asarobustnesscheckwerunGHHIregressionsandinaspecificationthatincludesonlyquarterFEswefindastrongnegativecorrelationbetweentheGHHIandalldepositrateslike

Azar,Raina,andSchmalz

(2022).Thisfindingdisappearshoweveroncebank-quarter

FEs,andbank-branchFEsareincludedsimilartothefindingsofthemainanalysis.AnotherimportantdifferenceisthatthispaperexaminesnotonlytheeffectofCOonpricesbutalsoonchangesindepositquantities.Inadditiontothisthereareseveralsmallerdifferences

.7

InadditionthispaperisrelatedtothebroaderliteratureontheCOHhypothesis,whichwassparkedbytheseminalcontributionof

Azar,Schmalz,andTecu

(2018)whofound

6Anaddedbenefitisthatprofitweightsvarynotjustatthemarket-timelevel,butatthebank-market-timelevel.Thiscreatesadditionalvariationandallowsustocontrolformarket-timefixedeffectsinsomespecifications.Theprofitweightsactuallyevenvaryatanevenmoregranularlevel:thatoforderedfirmpairs.However,theoutcomesweobserve-pricesandquantities-varyonlyatthefirmlevel.

7First,

Azar,Raina,andSchmalz

(2022)usedatafromSECform13Fwhereasthispaperusesmore

comprehensiveownershipdatathatalsoincludesdatafromSECforms3,4and5,DEF14A,13Dand13G.Second,

Azar,Raina,andSchmalz

(2022)usecountiesasbankingmarketdefinitionswhereasthispaperuses

thegeographicbankingmarketdefinitionsusedbytheFedandtheDOJforthecompetitivereviewofbankmergers.Third,theselectionofproductsdiffer.Thispaperconsidersmoredepositinterestratesthan

Azar,

Raina,andSchmalz

(2022),butthatpaperalsoconsiderfeesandfeethresholds,whichthispaperdoesnot

.Lastly,thesamplewindowforthispaperis2005to2022whereas

Azar,Raina,andSchmalz

(2022)covers

2002to2013.

6

anticompetitiveeffectsofCOintheairlineindustrybyrelatingairlinepricestotheMHHI

.8

Otherimportantcontributionsinclude

Backus,Conlon,andSinkinson

(2021a)whopropose

astructuralapproachtotestingtheCOHusingdatafromthecerealindustry,and

Antón,

Ederer,Giné,andSchmalz

(2023)showingthatCOisassociatedwithlessperformance

sensitivemanagerialincentives,andtherebysuggestingamechanismfortheCOH.ExcellentsurveysofthelargeandgrowingCOliteraturecanbefoundin

Schmalz

(

2018

)and

Schmalz

(2021).

Backus,Conlon,andSinkinson

(2019),

Backus,Conlon,andSinkinson

(2020)and

Backus,Conlon,andSinkinson

(2021b)providesomebackgroundontheory,measurement,

thehistoricaldevelopmentofCO,andadiscussionofdifferentmethodologies.

RoadmapTheremainderofthispaperisstructuredasfollows.Section

2

brieflyexplainsthecommonownershipmodelby

O’BrienandSalop

(2000).Section

3

goesoverthedatasources.Section

4

firstcomparesthedepositratesofpublicandprivatebanks,andthencomparestheratesofpublicbanksinmarketswheretheycompetewithotherpublicbanks(COmarkets)andinmarketswheretheycompeteonlywithprivatebanks(noCOmarkets).Section

5

examinestheeffectofCOondepositratesinpanelregressions.Section

6

examinestheeffectofCOondepositquantities.Section

7

concludes.

2CommonOwnershipModelbyO’BrienandSalop

Thissectionbrieflydiscussesthemodelby

O’BrienandSalop

(2000)inwhichthemanager

offirmjmaximizestheobjectivefunctionⅡj,whichisaweightedsumofitsownprofitsπjandtheprofitsofrivalsπkwhohavecommonshareholders:

maxⅡj=πj+wjkπk

wjk=ijβik

Managersorbanksareindexedbyjandk,andshareholdersbyi.The“controlshare”ofowneriinfirmjisij.Thisisthereforetheweightthatmanagerjassignstoowneri’spayoffintheobjectivefunction.Foreachfirmj,thecontrolsharesadduptooneΣiij=1.Thefractionofπkthataccruetoowneriisβik.Foreachfirmk,theownershipsharesaddup

8See

Dennis,Gerardi,andSchenone

(2022)forarebuttal

.

7

toone：iβik=1aswell.ItnaturaltoassumethatthecontrolshareTijisanon-decreasingfunctionoftheownershipshareβij:asi’sownershipoffirmjincreases,managerjshouldplacemoreweightoniinitsobjectivefunction.InthispaperwefollowthemostcommonassumptionintheliteratureinassumingthatTij=βij,whichiscalledtheproportionalcontrolassumption.Asowneriincreasestheirownershipoffirmj,twotermsinmanagerj’sobjectivefunctionincrease:βijandTij.Astheobjectivefunctiondependsontheinteractionbetweenbetweenbothterms,βijTij,largeshareholderscanhaveadisproportionateimpactontheobjectivefunctions.

Theprofitweightsabankplacesontheprofitsofitsrivalsvaryacrossgeographicbankingmarketsmdependingonwhichcompetitorsarepresentinthemarket.

9

Intheremainderof

thispaperwewillfocusonwal=：kjwjk,wherethesumistakenoverallkjwho

arealsocompetinginmarketm.Thebasicideaisthatwalisthetotalweightthatbank

jplacesontheprofitsofitsrivalsinmarketm.Forinstanceifwal=1thenbankjcares

justasmuchabouttheprofitsofitsrivalsasaboutitsownprofits.Aswalincreasesbank

jcareslessaboutitsownprofitsandshouldthereforebecompetinglessaggressively.

3Data

Thedatacomesfromanumberofsourcesandcoversthesamplewindowfrom2005to2022.OwnershipdataanddepositratedatacomesfromS&P,quantitydatacomesfromtheFDIC’sSummaryofDeposits(SOD),anddataonthegeographicmarketdefinitionscomesfromtheFederalReserve’sCASSIDIsystem.

10

Thesedatasetsarebrieflydescribedbelow.

OwnershipDataDataonbankshareholdersandthesizeoftheirholdingscomesfromS&P(formerlyCapitalIQ)ownershipdatasetstartingin2005,whichcontainsownershipinformationfromseveralSECfilings.TheliteraturehasfocusedprimarilyontheinformationfromSECfiling13F,whichmustbefiledbyinstitutionalinvestmentmanagerswith$100millionormoreinassetsundermanagement.Filersincludestand-aloneassetmanagers,banks,insurancecompanies,pensionfunds,anduniversityendowments.TheS&PCapitalIQdatahoweveralsocontainsdatafromvariousotherSECfilingssuchasthe3,4and5,DEF14A,13Dand13G.TheSECforms3,4and5mustbefiledbyinsiderssuchasofficersordirectorsofthebanktoreportpurchases,salesandholdingsofshares.TheSECformDEF14A,thedefinitiveproxystatement,mustbefiledforshareholdervotesandcontainsasectiononbeneficialownershipwithinformationoninsiderholdingsandtheholdingsof

9Theweightsalsovaryoverquartersqbutweignorethisheretokeepthenotationsimpler.

10DatafromtheNationalInformationCenter(NIC)isusedtolinksubsidiariesofBankHoldingCompaniestotheparentinstitution.

8

otherlargeshareholders.TheSECforms13Disabeneficialownershipreportthatmustbe

filedbyshareholdersowningmorethan5%.SomeshareholdersareeligibletofiletheshorterSECform13Ginsteadofthe13D

.11

Theseadditionalfilingscaptureownershipbysmallerandnon-institutionalshareholdersthan13Ffilerswhotendtobelessdiversifiedandsometimesholdsizableconcentratedpositions.AccountingfortheirownershipthereforetypicallylowersthemeasuredlevelofCO.ThereductioninthemeasuredCOisoftenimportantforsmallerpublicbanks,inparticulartheapproximately100publicbanksthatarenotlistedbuttradedOTC.Smallpublicbanksoftenhavelowlevelsof13Fownership,butbecausetheirmarketcapitalizationisfairlylowothershareholderscanholdsizablepositions.Onecommoncaseisthatmembersofthefamilythatusedtheowntheentirebankbeforeitwentpubliccontinuetoholdsizablepositions.Insomecasessuchshareholdersevenplayanimportantroleforlargerbanks.ThemostentertainingexampleistheappropriatelynamedHoldingfamilythatownsapproximately20%ofFirstCitizensBank,whichhasmorethan$100billioninassetsand550branches

.12

DepositRateDataS&P(formerlyRateWatch)conductsweeklysurveysofbranchesforratesandfeesforvariousfinancialproductssince2003.S&Pdoesnotsurveyeverybranchinthecountry;theyhaveidentifiedwhatcanbecalledrate-setterandrate-takerbranches.Rate-settersarebrancheswhichsettheratesforallbranchesinsomeregion.S&Palsoprovidesamappingofrate-takerstorate-setters.Thedistinctionbetweenrate-setterandrate-takerbranchesispotentiallyrelevantfortheinterpretationofthefindingsandweshowrobustnesschecksthatonlyusedatafromrate-setterbranches.

Thispaperusesrateson$10,000CDswithmaturitiesof3,6,12,24,and60month,interestcheckingaccountsstartingat$0andinterestcheckingaccountsstartingat$2,500,andmoneymarketaccountswith$2,500,$10,000and$25,000.Whilethesedataareavailableataweeklyfrequencyonlythelastweekofeachquarterisusedtomatchthefrequencyoftheownershipdata.Thecoverageofbankbranchesisnotconstantduringthesamplewindow.Itstartswithabout15,000branchesin2005,increasestomorethan50,000branchesaround2010,andremainsrelativelysteadythereafter.

DepositDataDataondepositquantitiescomesfromtheFDIC’sSummaryofDeposits(SOD).TheSODisanannualcensusofinsureddepositoryinstitutionsthatistakenasof

11TheS&PCapitalIQdataalsocontainsinformationfromotherformssuchastheN-Q,N-PortandN-CSRthatarefiledbyinvestmentcompaniesandthereforecontainsimilarinformationasthe13Ffilings.

12FirstCitizenhasrecentlyacquiredthecommercialbankingbusinessofSiliconValleyBank,whichmorethandoubleditsassetstomorethan$200billion,makingitoneofthe20largestbanksinthecountry.However,thisacquisitionoccurredin2023afterthesamplewindowusedinthispaper.

9

June30ofeachyear,andtracksdepositinformationatthebranchlevel.WealsousetheFDICsbranchidentifierinspecificationswithbranchfixedeffects.

GeographicBankingMarketDefinitionsDataongeographicbankingmarketscomesfromtheFederalReserve’sCASSIDIsystem.ThesegeographicmarketdefinitionsareusedbytheFederalReserveandtheDepartmentofJusticetoassessthecompetitiveeffectsofbankmergers.Thereareroughly1,500bankingmarketsintheUS.ForeachFederalReservedistrictthebankingmarketsinthedistrictaredefinedbytheregionalFedincollaborationwiththeFedBoard.

4RawAverages

4.1ComparingPublicandPrivateBanks

Inthissectionwefirstshowhowthegrowthofcommonownershipamongpubliclytradedbanksincreasedthepredictedweightthattheyplaceonrivalprofitsbetween2005and2022,whereastheweightthatprivatelyheldbanksplaceonrivalprofitsremainedconstantat0.Nextwelookatdepositinterestratesofpublicandprivatebanksduringthesametimewindowtoseewhetherthisdivergenceofobjectivefunctionsbetweenpublicandprivatebanksalsoledtoadivergenceofprices.

FirstconsiderFigure

1

,whichshowstheweightthatpublicandprivatebanksplaceontheprofitsoftheirrivalsfrom2005to2022.

13

Theprofitweightsarecalculatedusingthecommonownershipmodelby

O’BrienandSalop

(2000)undertheassumptionofproportionalcontrol

asdescribedinsection

2.

Bankswhosestockispubliclytraded,eitheronanexchangeorOTC,areshowninblue,andprivatelyheldbanksareshowninred.Thegeographicmarket

definitionforthisgraphisabankingmarketasdefinedbytheFederalReservetoassessthecompetitiveeffectsofbankmergers.Foreachbankjthatoperatesinsomebankingmarketmwesumalltheweightsthatjplacesonrivalskwhooperateinthesamemarket:

wal=：kjwjk.Thenweaveragewalforallpublicbanksandforallprivatebanks.

Privatelyheldbanksplacenoweightonrivalprofits,i.e.theirobjectivefunctionistomaximizetheirownprofits.Publicbanks,however,placeconsiderableweightonrivalprofits