The Most Important Concepts in Finance
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The Most Important Concepts in Finance

Edited by Benton E. Gup

Anyone trying to understand finance has to contend with the evolving and dynamic nature of the topic. Changes in economic conditions, regulations, technology, competition, globalization, and other factors regularly impact the development of the field, but certain essential concepts remain key to a good understanding. This book provides insights about the most important concepts in finance.
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Chapter 11: An economic perspective of big banks

Benton E. Gup


Mergers, acquisitions, and consolidation of business organizations are a natural consequence of economic growth and business failures. In 1907, Alfred Marshall discussed the link between biology and economics that gave us the concept of “survival of the fittest.” This is consistent with Gibrat’s law of proportionate growth, which generates the lognormal size distribution of firms that we observe in the automobile, banking, retail sales, wireless communications carriers, and other industries. In plain English, a few large firms dominate these industries. For example, in the early 1900s, there were more than 200 different firms producing automobiles in the United States. Today, Ford and General Motors are the only surviving American automobile manufacturers. Chrysler is owned by Fiat®, an Italian car company that also produces Dodge, Jeep, and other brands. Foreign-owned automotive producers in the U.S. include BMW, Daimler AG (Mercedes-Benz), Fiat, Honda, and Toyota. Similarly, there are a lot of small air carriers, but the world’s largest airlines by passenger count in 2015 were American Airlines, Southwest Airlines, and Delta Airlines. In 1921, there were 30 456 commercial banks in the United States. The number of banks declined both before and after the Great Depression (1929–39) beginning in 1929 to a low of 14 207 in 1933. Following a slight rebound, the number of banks continued to decline. In 2016 (second quarter), there were 5238 Federal Deposit Insurance Corporation (FDIC)-insured commercial banks in the U.S. Of that total, 96 large banking organizations with assets greater than $10 billion controlled 84 percent of total bank assets. The four largest bank holding companies (JPMorgan Chase & Co., Bank of America Corporation, Citigroup Inc., and Wells Fargo & Company) controlled 55 percent of bank assets.

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