Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation. Review of Financial Studies 22:1–40

Amodel of multimarket spatial competition is developed where small, single-market banks compete with large, multimarket banks (LMBs) for retail loans and deposits. Consistent with empirical evidence, LMBs are assumed to set retail interest rates uniformly across markets, have different operating costs, and have access to wholesale funding. If LMBs have significant funding advantages that offset potential loan operating cost disadvantages, then market-extension mergers by LMBs promote loan competition, especially in concen-trated markets. However, such mergers reduce retail deposit competition, especially in less concentrated markets. Prior empirical research and our own analysis of retail deposit rates support the model’s predictions. (JEL G21, G28, G34, L11) Banks in theUnited States have experienced rapid consolidation in recent years. Restructurings have been driven by advances in information technology and by deregulation of geographic restrictions on branching and acquisitions. Since the mid-1980s, the number of commercial banks and savings institutions more than halved from 17,900 in 1984 to 8,681 in 2006, and during the same period banks’ average asset size (in inflation-adjusted 2006 dollars) more than tripled fro