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Monopoly-Creating Bank Consolidation? The Merger of Fleet and BankBoston

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Author Info
Charles W. Calomiris
Thanavut Pornrojnangkool

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Abstract

The merger of Fleet and BankBoston in September 1999 resulted in a regional New England lending market in which only one large, universal bank remained. We explore the extent to which that merger resulted in monopoly rents for the combined entity in some niches within the regional loan market. For small- and medium-sized middle-market borrowers, prior to the merger, Fleet and BankBoston charged unusually low loan interest rates, reflecting their ability to realize economies of scope and scale. After the merger, those cost savings were no longer passed on to medium-sized middle-market borrowers, which resulted in an increase in the average interest rate credit spreads to those borrowers of roughly one percent. Small-sized middle-market borrowers (which continued to enjoy the advantage of loan market competition from remaining small banks) maintained their low spreads. Our results suggest that it may be desirable for regulators to consider the concentration in lending markets in addition to deposit markets when evaluating mergers and structuring appropriate divestiture requirements.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11351.

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Date of creation: May 2005
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Handle: RePEc:nbr:nberwo:11351

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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  1. Serena Ng & Matt Shum, 2007. "Detecting Information Pooling: Evidence from Earnings Forecasts after Brokerage Mergers," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1). [Downloadable!]
  2. Charles Calomiris & Thanavut Pornrojnangkool, 2006. "Relationship Banking and the Pricing of Financial Services," NBER Working Papers 12622, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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