Banking consolidation in Tenth District states

Bank mergers have attracted much attention during the last year due to a surge in mergers among the nation's largest banking companies. The consolidation of the banking industry has been going on much longer, however. Since the early 1980s, the number of banking organizations has fallen by more than a third in both Tenth District states and the nation as a whole. Some of the decline has been due to failures, but most has been due to mergers.> In debating the pros and cons of such consolidation, analysts point to three important ways it may alter the structure of the banking industry. First, if consolidation occurs through the absorption of small banks by large banks, it may reduce the role of small banks in the banking system. Second, if consolidation occurs through the merger of banking organizations in different markets, it may increase the geographic scope of bank operations -that is, the extent to which banks operate over wide areas within and across state lines. And third, if consolidation occurs through the merger of banking organizations within the same market, it may increase the concentration of local markets -that is, the tendency for markets to be dominated by a few banks. Analysts agree each of these effects is important to bank owners and customers but disagree as to whether each effect is beneficial or harmful on balance.> Keeton examines whether consolidation has had these effects, and if so, to what degree for Tenth District states. He concludes that consolidation has reduced the role of small banks, increased geographic diversity, and increased local market concentration. The magnitude of these effects, though, has differed across states and between urban and rural markets within each state.