Deposit Market Segmentation and Bank Mergers
Abstract: Market segmentation is a defining feature of deposit markets, with rate-sensitive and branch-sensitive depositors. Mergers between online banks, where market shares may understate competitive effects, can be more anti-competitive than regulators anticipate. By contrast, mergers between physical banks often trigger branch closures, which will harm branch-sensitive depositors in local markets. I plan to estimate a structural model of heterogeneous depositors and banks’ rate-setting and branch-operation decisions. Preliminary results suggest that online banks earn higher margins than they appear to. Counterfactual merger simulations will examine how online-bank mergers reduce rate competition and how physical-bank mergers reduce welfare through branch closures.