Events

Professor Yufeng Wu
Associate Professor of Finance
Ohio State University

Consumers prefer to obtain multiple financial products from the same bank. We provide causal evidence of this demand complementarity in banking and estimate a dynamic model to study its implications for multimarket banks, quantifying important impacts on bank synergies, pricing strategies, and the interconnection of their services across markets. Using a shift-share design that exploits local variation in Conforming Loan Limits, we identify how exogenous changes in banks’ mortgage market shares spill over into deposit demand. We then use this spillover to estimate a dynamic model in which banks compete across multiple markets, and cross-selling emerges endogenously as an optimal response to consumer demand complementarity. Our estimates imply that a mortgage relationship increases a household’s probability of choosing the same bank for deposit services by 41.4 percent. This complementarity generates a new mechanism for economies of scope in banks, contributing to 2.5 percent of banks’ market value.