Does the United Kingdom have regional banking markets? An assessment of UK deposit provision 1992–2006

Abstract

This study examines whether geographical differences in deposit interest rate setting persists in a bank market with national bank branching. As most UK retail banks have located their branch networks in different combinations within the regions and nations of the United Kingdom, the availability of banking services across the United Kingdom differs. This study examines whether this uneven dispersion of bank branching is associated with deposit account interest rate setting by UK banks over the sample period 1992 to 2006. While banks with branch networks predominately located in certain regions set deposit interest rates at different levels, the degree of overlap between bank branch networks is not a significant factor in deposit interest rate setting. These findings have importance for the definition of banking markets in competition assessments and future assessments of interest rate setting within international banking markets where bank branching restrictions have been lifted.

Acknowledgements

I would like to thank the Moneyfacts Magazine for kindly granting access to their substantial database of financial services interest rates and charges, and Catherine Waddams for helpful comments on an earlier draft of this article. The usual disclaimer applies.

Notes

¹For brevity, all depository institutions are termed banks. This definition includes building societies, retail banks and other providers of depository services.

²Euclidian distances are adopted to quantify the degree of differences between pairs of observations rather than the more restrictive measure of linear association considered by Pearson's correlation coefficient.