Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Edited by Peter C. Carstensen and Susan Beth Farmer

This comprehensive book contains case studies on the evolution of competition policy, with an emphasis on merger policy, for seven major US industries that have experienced substantial deregulation in the past forty years – electricity, natural gas, telecommunications, railroads, airlines, hospitals and banking. Also included is a comparison of the EU’s experience in attempting to bring about competition in the energy, finance, and airline industries.

Chapter 8: Mergers and Competition Policy in the Banking Industry

Bernard Shull

Subjects: economics and finance, competition policy, industrial organisation


Bernard Shull INTRODUCTION The transformation of commercial banking in the United States over the last 25 years has been characterized by a merger movement of immense proportions. These mergers have substantially reduced the number of independent institutions, produced a handful of very large banking firms that operate in markets throughout the country (and the world) and have increased national (aggregate) concentration substantially. It has involved bank entry into newly permissible financial and non-financial activities, and bank-like powers for other financial institutions. It has converted the old ‘commercial banking industry’ into what many now label ‘the financial services industry’. The transformation has been generated by market developments, new legislation and revised regulation that have swept away longexisting restraints. The next section briefly reviews the history of bank competition policy in the United States. The following section examines the legal and market changes that initiated new policies in the recent past. The subsequent sections examine policy implementation at the Federal banking agencies that has facilitated bank mergers and activity expansion, describe the size and scope of the resulting structural changes, review relevant information on the economic impact of the changes and present some proposals for further modifications in policy. While uncertainty remains as to costs and benefits, there is little evidence that the structural changes that have developed to this point have created any net benefit. Further, the likely long-run outcome of the changes underway raises important questions independent of the issues typically raised in merger and...

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