WHATS DIFFERENT AMONG BANKS

Based on commercial paper being a nearly perfect substitute for certif icates of deposits (CDs) and CD reserve requirements creating a higher cost of funds for banks, Fama shows that the banking industry must ha ve some monopoly power relative to other financial institutions. His a nalysis does not resolve whether this monopoly power is vested in bank s collectively, vis-a-vis other financial institutions, or if the mono poly power extends to the level of individual banks. Using an event st udy framework to examine the elimination of a reserve requirement, we find significant evidence of monopoly power at the level of individual banks. (C) 1998 Elsevier Science B.V. All rights reserved.