Edited by Peter C. Carstensen and Susan Beth Farmer
Chapter 8: Mergers and Competition Policy in the Banking Industry
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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