|
|
|
| Current Issue |
|
|
| Resources |
|
|
|
Who Gains When Large Banks Merge?
| Article
# : |
10512 |
|
|
Section : |
CURRENT ISSUES
|
| Issue
Date : |
1 / 1993 |
2,246 Words |
| Author
: |
David B. Humphrey
David B. Humphrey is Fannie William Smith eminent scholar in
banking, Department of Finance, School of Business, at Florida
State University in Tallahassee. |
Recent public statements, particularly by Ross Perot during his run for the presidency, have cast a shadow over the future of the banking industry. Perot predicted: "Right after Election Day this year, they're going to hit us with a hundred bank [failures]. It will be a $100 billion problem."
Perot's day of judgment passed without event, but there are many who remain skeptical about the stability of the U.S. banking system. It is in this climate that the recent boom of mega mergers, like the one between Manufacturers Hanover and Chemical Bank, takes on added interest.
Mergers among large banks are supposed to ensure stability and reduce costs. The majority of banks costs arise for providing convenient offices, maintaining a safe place for savings, and clearing over $300 billion a day in checks. Banks also facilitate electronic wire transfers of over $2 trillion each day for business payments and for settlement of transactions made earlier in the equity, commodity, and financial markets.
Historically, U.S. banks have become large primarily through mergers. Indeed, though bank sizes are also influenced by growth in existing markets and/or the opening of new banking offices in new markets, this contribution is small. Mergers account for over 70 percent of the growth of the 20 largest U.S. banks. Out of a total of over 11,000 banks (and falling each year), the top 200 account for almost three-fourths of all U.S. banking assets and have an average size of over $10 billion.
Banking in other countries is considerably more concentrated. In Canada, Europe, and Japan, the top 10 banks hold over 90 percent of the banking assets; in the United States it would take more than 3000 banks to hold that percent. As such there is greater scope for expansion via mergers in the United States than anywhere else, and greater concern over the cost benefits realized.
THE ROLE OF MARKETS
The vast majority of U.S. bank mergers have been "across market", or between banks in markets with little overlap. An example is National Bank, formed recently from the merger of North Carolina National in North Carolina, Citizens and Southern in Georgia, and Sovran in Virginia.
Across-market mergers have been quite numerous historically, and existing bank data adequately reflects the
...
Read Full Article
Look for this article in Ask.com
|
|
