THE PROFIT-STRUCTURE RELATIONSHIP IN LEGALLY PROTECTED BANKING MARKETS USING EFFICIENCY MEASURES

Our various tests suggest that our sample banks that are shielded from competition by severe intrastate branching restrictions have market p ower. This analysis has allowed us to test rigorously the adverse effe cts of legal and possibly market barriers to entry. We reject the noti on that profits are a result of superior a-efficiency. We conclude if these results are corroborated by further research (e.g., using other measures of profit, efficiency, capital, etc), and if these and/or oth er barriers remain, the Federal Reserve should be concerned with the c ompetitive impacts of rural, in-market bank mergers.