In this paper, we consider three issues raised by the apparent inconsistency between the current research practice of using county-based markets (Metropolitan Statistical Areas (MSAs) and non-MSA counties) to investigate the validity of the theoretical underpinnings of bank merger policy and the current regulatory practice of using Federal Reserve (FR) banking markets, which often do not follow county lines, to implement that policy. Using a national sample of bank and thrift branch deposit data, we find that county-based areas cannot simply substitute for FR markets in the implementation of bank merger policy. For example, numerous potential mergers would raise competitive issues in county-based areas, but not in FR markets, and vice versa. We also conclude that, because of the relative difficulty of assembling demographic data for non-county-based areas, it is impractical to consistently use FR markets in bank merger policy research. However, we do find that, despite the inconsistencies between the two types of markets, analysis that uses county-based areas is relevant for bank merger policy that is implemented with FR markets. For example, we find that profitability regression results using variables based on FR markets are similar to those found using variables based on MSAs and non-MSA counties.

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