Merger Activity as a Determinant of De Novo Entry into Urban
Banking Markets
Working Paper 2003-01
REVISED April 2003
Steven A. Seelig
International Monetary Fund
Tim Critchfield
Federal Deposit Insurance Corporation
Washington, D.C. 20429
Phone: 202-898-8557
Fax: 202-898-7222
E-mail: TCritchfield@fdic.gov
The views stated here are those of the authors and do not necessarily reflect those of the
Federal Deposit Insurance Corporation. The authors would like to thank Christopher
Richardson, Robert DeYoung, and Larry Wall for their helpful comments, Robert Avery
for help with branch-office deposit data, Robin Heider for research assistance and
Lawrence Goldberg for bringing a programming error to the attention of the authors.
Banking Markets
Working Paper 2003-01
REVISED April 2003
Steven A. Seelig
International Monetary Fund
Tim Critchfield
Federal Deposit Insurance Corporation
Washington, D.C. 20429
Phone: 202-898-8557
Fax: 202-898-7222
E-mail: TCritchfield@fdic.gov
The views stated here are those of the authors and do not necessarily reflect those of the
Federal Deposit Insurance Corporation. The authors would like to thank Christopher
Richardson, Robert DeYoung, and Larry Wall for their helpful comments, Robert Avery
for help with branch-office deposit data, Robin Heider for research assistance and
Lawrence Goldberg for bringing a programming error to the attention of the authors.
Merger Activity as a Determinant of De Novo Entry into Urban Banking Markets
Steven A. Seelig and Tim Critchfield
Correction to 1999 Draft
This paper reflects revisions made for a programming error and to reflect articles
published subsequent to the original draft in early 1999. A programming error reversed
the signs on all the variables used in our original logit analysis. As a result the 1999 draft
of this paper concluded that in-market acquisitions discouraged de novo entry, while this
revision concludes just the opposite: in-market acquisitions encourage de novo entry.
However, the original draft conclusion that out-of-market acquisition activity does not
significantly encourage de novo entry still holds after correcting the programming error.
The complex economic variables used in the draft from 1999 were simplified in this
version and data for 1998 were added.
Abstract
The increase in both the number of bank (and thrift) mergers and the number of
de novo entries has led the press to speculate that these trends are interrelated.
Specifically, the media have suggested that out-of-market acquisitions encourage de novo
entry. This paper examines the determinants of de novo entry at the individual market
level and specifically tests the hypothesis that "out-of-market acquisitions lead to de novo
entry into that market." This study differs from the earlier literature on the determinants
of de novo entry in several respects: (1) Banks and thrifts are treated as full competitors
and included in the empirical work. (2) The time frame examined is 1995-1998, a period
of record earnings for banks and thrifts. (3) The data for new charters have been scrubbed
so that only "true" de novo entrants are included in the empirical work. A theoretical
framework for de novo entry is developed, and logit analysis is applied to all MSAs for
the four-year period.
JEL Classification:
Keywords: De novo entry, New charters, Mergers leading to new charters
1
Steven A. Seelig and Tim Critchfield
Correction to 1999 Draft
This paper reflects revisions made for a programming error and to reflect articles
published subsequent to the original draft in early 1999. A programming error reversed
the signs on all the variables used in our original logit analysis. As a result the 1999 draft
of this paper concluded that in-market acquisitions discouraged de novo entry, while this
revision concludes just the opposite: in-market acquisitions encourage de novo entry.
However, the original draft conclusion that out-of-market acquisition activity does not
significantly encourage de novo entry still holds after correcting the programming error.
The complex economic variables used in the draft from 1999 were simplified in this
version and data for 1998 were added.
Abstract
The increase in both the number of bank (and thrift) mergers and the number of
de novo entries has led the press to speculate that these trends are interrelated.
Specifically, the media have suggested that out-of-market acquisitions encourage de novo
entry. This paper examines the determinants of de novo entry at the individual market
level and specifically tests the hypothesis that "out-of-market acquisitions lead to de novo
entry into that market." This study differs from the earlier literature on the determinants
of de novo entry in several respects: (1) Banks and thrifts are treated as full competitors
and included in the empirical work. (2) The time frame examined is 1995-1998, a period
of record earnings for banks and thrifts. (3) The data for new charters have been scrubbed
so that only "true" de novo entrants are included in the empirical work. A theoretical
framework for de novo entry is developed, and logit analysis is applied to all MSAs for
the four-year period.
JEL Classification:
Keywords: De novo entry, New charters, Mergers leading to new charters
1