Deregulation, Market Structure, and the Evolution of U.S. Banking
Abstract
We construct novel network-based measures of U.S. state-level bank deregulation intensity that allow us to separately identify the effects of deregulation on competition and investment opportunities. In contrast to existing studies, we find that increased competition leads to higher deposit funding costs and a reduction in banks’ net interest margins and profitability. In response, banks shift their business models and persistently increase their risk taking. Our findings resolve conflicting evidence in the literature and support theories in which reductions in bank charter values lead to higher bank risk taking.
This paper was accepted by Camelia Kuhnen, finance.
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2025.01128.

