Review of Industrial Organization 17: 427–439, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
The Inﬂuence of Credit Union and Savings and
Loan Competition on Bank Deposit Rates in Idaho
ROBERT J. TOKLE
Department of Economics, Idaho State University, Pocatello, Idaho 83209, U.S.A.
JOANNE G. TOKLE
Department of Management, Idaho State University, Pocatello, Idaho 83209, U.S.A.
Abstract. This study examines the effect of S&L and credit union competition on bank behavior
in Idaho and Montana. A structure-performance OLS model is used to estimate bank interest rates
on certain deposits. Two key independent variables are local market share of credit unions and S&L
deposits. Overall, previous studies found little evidence that thrift competition affects bank perform-
ance. We found some evidence that thrift competition, especially from credit unions, results in higher
interest rates for bank CDs. These results have policy implications as banking groups currently seek
to restrict credit union competition.
Key words: Bank competition, credit union, interest rates, structure-performance model.
Edwards (1964) published the ﬁrst of many studies on bank structure. Gilbert
(1984) surveyed forty-four studies on bank structure published between 1964 and
1983. These studies typically used the structure-performance hypothesis, which
says that ﬁrms in more concentrated markets may ﬁnd it easier to collude, either
implicitly or explicitly. The most common dependent variables used have been
bank proﬁt rates and interest rates charged on loans and paid on deposits. Hence,
the structure-performance hypothesis would predict higher proﬁt rates, higher loan
interest rates and lower deposit interest rates in more concentrated markets. Results
of these bank structure studies have been mixed, but generally do support somewhat
the structure-performance hypothesis. Of the forty-four studies in Gilbert’s survey,
thirty-two ﬁnd some support of the structure-performance hypothesis.
The authors are grateful to Paul Zelus, Director, Center for Business Research and Services,
Idaho State University, for supplying us with Census Bureau and Bureau of Economic Analysis data.
We also thank Teri Peterson, Lonnie Nelson, and anonymous referees for helpful suggestions.
In addition, McCall (1980) in a highly regarded survey on bank structure and bank service to
local communities, found that markets with higher bank concentration generally paid lower interest
rates on deposits and charged higher interest rates on loans.