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Bank mergers and banking structure in the United States, 1980-98


  • Stephen A. Rhoades


The U.S. banking industry experienced a sustained and unprecedented merger movement from 1980 to 1998. During that period, approximately 8,000 bank mergers occurred, involving about $2.4 trillion in acquired assets. The 1990s, especially 1994-98, was a period of numerous large bank mergers, including several that were among the largest in U.S. banking history. This study describes various aspects of that bank merger activity and some of the changes in U.S. banking structure and performance that took place during 1980-98. With respect to bank merger activity, the study examines the number and asset size of the acquiring and acquired banks, by year and state; the identities and sizes of the parties involved in large mergers; the types of mergers (horizontal and market extension), markets (urban and rural), and corporate form of the acquirers (independent banks and bank holding companies); and the number of mergers and related assets approved by each federal bank regulator. With respect to U.S. banking structure and performance, the study examines the change in the number of banks and offices, the number of automated teller machines (ATMs) and ATM transactions, nationwide and local market banking concentration, and bank profits and stock prices. The study found that there was a very large decline in the number of banks and banking organizations from 1980 to 1998. Merger activity remained at a high level throughout most of the period. Nevertheless, the number of banking offices continued to grow despite the large decline in the number of banks and the burgeoning of ATMs. Concentration of U.S. bank deposits among the largest banks increased greatly, especially from 1994 to 1998, when a number of exceptionally large mergers occurred. Concentration increased substantially in many local banking markets, especially in large metropolitan areas, where concentration tended to be relatively low. Initial statistical tests indicate that bank mergers and a decline in the number of banks have played a role in increasing local market concentration. At the same time, the study suggests that "switching costs"--that is, the costs customers incur to change banks--are an increasingly important characteristic of retail banking. Because bank competition within local market areas directly affects retail customers, any trends toward increasing concentration and higher switching costs suggest that antitrust laws may become a constraint on more mergers than in the past. These tendencies suggest that divestitures will likely become a public policy remedy that will be used with increasing frequency.

Suggested Citation

  • Stephen A. Rhoades, 2000. "Bank mergers and banking structure in the United States, 1980-98," Staff Studies 174, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgss:174

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    References listed on IDEAS

    1. Steven Pilloff, 1999. "Multimarket Contact in Banking," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(2), pages 163-182, March.
    2. Robert Tannenwald, 1994. "The geographic boundaries of New England's middle-lending markets," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 45-64.
    3. Myron L. Kwast & Martha Starr-McCluer & John D. Wolken, 1997. "Market definition and the analysis of antitrust in banking," Finance and Economics Discussion Series 1997-52, Board of Governors of the Federal Reserve System (U.S.).
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    1. Prosper F. Bangwayo-Skeete & Ryan W. Skeete, 2007. "Regional Integration and Elasticities of Export Demand in Barbados," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 23-41, January-J.
    2. Ahmad Bello, Dogarawa, 2006. "Challenges of Bank Consolidation to the Central Bank of Nigeria: A Descriptive Analysis," MPRA Paper 23198, University Library of Munich, Germany.
    3. Yongil Jeon & Stephen M. Miller, 2007. "Births, Deaths, And Marriages In The U.S. Commercial Banking Industry," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 325-341, April.
    4. Bos, Jaap W.B. & Kolari, James W. & van Lamoen, Ryan C.R., 2013. "Competition and innovation: Evidence from financial services," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1590-1601.
    5. Robert Pollin & James Heintz, 2013. "Study of U.S. Financial System," FESSUD studies fstudy10, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    6. Martin Goetz, 2011. "Bank Organization, Market Structure and Risk Taking: Theory and Evidence from U.S. Commercial Banks," NFI Working Papers 2011-WP-11, Indiana State University, Scott College of Business, Networks Financial Institute.
    7. Alicia García-Herrero & Josep Vilarrubia Author-Workplace-Name: Banco Central de la República Argentina, 2007. "The Laffer Curve of Macroeconomic Volatility and Growth: Can it be Explained by the Different Nature of Crises?," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 43-60, January-J.
    8. Prudence Serju, 2007. "Estimating Potential Output for Jamaica: a Structural VAR Approach," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-22, January-J.
    9. Jason Allen & Walter Engert & Ying Liu, 2007. "A Comparison of Canadian and US Universal Banks: Efficiency, Productivity, and the Role of Technology," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 61-96, January-J.
    10. Hakimi, Abdelaziz & Hamdi, Helmi & Djlassi, Mouldi, 2013. "Testing the concentration-performance relationship in the Tunisian banking sector," MPRA Paper 55927, University Library of Munich, Germany, revised 2013.

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    Bank mergers ; Banking structure;

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