ABSTRACT
The general findings of the profitability measurement tests are that evidence of imperfect contestability is found for credit card and installment loans and for personal and interest-bearing checkable deposits. Multistate operations are found to have significantly greater betas than one-state operations as Contestable Markets Theory (CMT) would predict. The multistate operations are found to have lower Excess Market Value (EMV) after 1979. Comparing statewide and limited branching states with unit banking states finds lower excess EMVs for the unit banking subset after 1983. A very rich potential area for testing CMT implications inside the financial institutions arena and with almost all other industries is the European Economic Community’s 1992 union. The results from the EMV test should find lower EMV with greater threats of entry to agree with CMT implications. In the banking sector, the implications of the results are somewhat different for the three main groups of players in the industry: customers, bankers, and regulators.
