Competition and Bank Mergers: Directions for Analysis from Available Evidence

• DOI: 10.1177/0003603X9604100205
• Date: 01 June 1996
• Author: Stephen A. Rhoades
• Published date: 01 June 1996
• Subject Matter: Article

The Antitrust Bulletin/Summer 1996

Competition and bank mergers:

directions for analysis from

available evidence

BY STEPHEN A. RHOADES*

I.

Introduction

339

This article pulls together data and research on consumer and

bank behavior, market imperfections, and emerging developments

that are relevant to analyzing the

competitive

effects of

bank

mergers and antitrust policy toward bank mergers. The competi-

tive effects of bank mergers are currently attracting considerable

attention

because

the

industry is

undergoing

amajor

merger

movement that is likely to continue as a result of recent legis-

lation allowing full nationwide banking. IFrom 1980-1994, over

*Federal Reserve Board, Washington, DC.

AUTHOR'S NOTE: The views expressed herein are the author's and do not

necessarily represent the views

of

the Board or its staff. I extend thanks

for

helpful comments to Dean Amel, Anthony Cyrnak, Timothy Hannan,

Robin Prager, and Donald Savage.

RHOADES, BANK MERGERS AND INDUSTRYWIDE STRUCTURE, 1980-94

(Staff Study, No. 169, Federal Reserve Board, January 1996).

© 1996 by Federal Legal Publications.Inc.

340

The antitrust bulletin

6300 banks were acquired involving about $1.2 trillion in acquired

assets, and several mergers occurred that were larger, in real terms,

than any previous U.S. bank mergers. A merger movement of such

proportions in any industry is of interest, but is even more impor-

tant in a huge and ubiquitous industry like commercial banking.

The industry has nearly 1.5 million employees and over $3.5 tril-

lion in total assets, and banks sell services directly to most house-

holds and businesses in the United States through approximately

60,000 banking offices around the country.

The extraordinary amount of merger activity in banking since

1980 is to a large degree a natural response to the removal of legal

barriers to geographic expansion both within and across states that

began in earnest in the mid-1980s and culminated with passage

of

legislation allowing full nationwide banking.? It is probably also a

response to rapidly evolving electronic technology that has great

potential but creates great uncertainty as well. The largest mergers

may be, in part, aresponse to the globalization

of

large-scale

wholesale banking.

The industry is now moving toward nationwide banking and

mergers provide avehicle for making that adjustment. There are,

of

course,

various motives

for

these mergers, some of

which

appear

to reflect managers' best interests while others

reflect

stockholders' best

interests.'

These include increasing profits,

empire building, developing the capacity to implement new tech-

nology, increasing size to avoid being acquired, increasing size to

become an attractive acquisition target, positioning for entry into

one's area by other banks, employing what is currently perceived

2

Congress

passed the Interstate

Banking

and

Branching

Efficiency

Act

in

September

1994.

That

law

permits

nationwide

banking

through

bank

holding

companies

as

of

September

29,

1995,

and

nationwide

branching

as

of

June 1, 1997.

Empirical

research

into

the

motives

for

mergers

in

banking

and

the

industrial sector indicate that there is no clear single

motive

for

mergers.

See,for

example,

DAVID

J.

RAVENSCRAFT

&F.M.

SCHERER,

MERG-

ERS,

SELL-OFFS

AND

ECONOMIC

EFFICIENCY

(1987),

esp.

at

210-15

and

Amel

&Rhoades, Empirical Evidence on the Motives for Bank Mergers,

15 E.

ECON.

J. 17

(Jan.-Mar.

1989).