Your Financial Institution and the Environment

Mergers and acquisitions have significantly changed the U.S. banking industry over the past quarter century. For example, during the 1980–2003 period the number of banking organizations decreased from about 16,000 to about 8,000, and mergers of healthy institutions were by far the most important cause of that consolidation. During that period, the share of industry assets held by the ten largest commercial banking organizations (ranked by assets) rose from 22 percent to 46 percent, and the share of industry deposits held by the ten largest (ranked by deposits) rose from 19 percent to 41 percent.

Several factors, including advances in information technology, have facilitated the industry’s consolidation, but the most important factor has undoubtedly been the gradual easing of geographic restrictions on banks. Widespread deregulation of geographic limits started in the mid-1970s and culminated with the Riegle–Neal Interstate Banking and Branching Efficiency Act of 1994. The easing enabled banking organizations to increase the size and reach of their operations by making acquisitions outside of their markets, including in other states.

This study examines patterns in the 3,517 mergers consummated during the ten years from 1994 to 2003; these transactions involved the acquisition of about $3.1 trillion in assets, $2.1 trillion in deposits, and 47,300 offices. The study only touches upon the effects of these mergers on such important areas as industry structure, bank efficiency, pricing, and risk, but the analysis herein should provide significant help to future research on these topics.

Download the complete article in PDF format