Raising funds in Pittsburgh is dramatically cheaper than in Kansas City, according to deposit rate data collected by Bankrate.com.
The two markets bookend a spectrum of prices for one-year certificates of deposit available across 25 large metropolitan areas, with weekly quotes ranging from an average of 0.76% to an average of 0.3% from July of last year to May this year (see charts).
It also appears that regional disparities can persist for a long time — markets with relatively higher rates over about the last year also generally had relatively higher rates in the year from July 2009 to June 2010. (All markets showed declines between the two periods as overall interest rates fell.)
Despite the prominence of national online platforms and the ability of consumers to rate shop using websites, Greg McBride, senior financial analyst at Bankrate.com, said varying levels of competition and local demand for loans, which drives funding needs, still create significant differentials.
Still, it is not easy to see these relationships in unemployment data and standard measures of market concentration.
The Kansas City metropolitan statistical area is indeed
Markets where banking companies have larger shares register higher scores, indicating greater concentration and possibly pricing power among firms. Regulators scrutinize mergers that raise a market's HHI by more than 100 points when the market already scores above 1,800.
The Kansas City market is fragmented, with an HHI of 521, fitting the premise that competition engenders higher rates. But in other markets that also appear to be fragmented, like Chicago and Miami, rates have been relatively low.
Similarly, markets like Los Angeles and Atlanta, which have relatively high unemployment (a sign of a weak economy that could imply weak loan demand), post counterintuitively high average CD rates.
Of course, high-level comparisons might not be suitable for testing the impact of competition and loan demand. HHI values in particular can be swung by headquarters deposits that do not accurately reflect an institution's footprint in a market, and banking companies with office networks spread out across geographic markets can raise deposits in one region to meet loan demand in another.
McBride held that competition is the most important factor in regional differences. "Bigger players don't have to compete on price," he said.
[IMGCAP(1)]
