Have borrower concentration limits encouraged bank consolidation?

Bank consolidation has been going on for more than a decade, in part the result of legislative and regulatory changes and in part a reflection of the large number of banks that became financially troubled in the late 1980s and early 1990s. However, the rapid consolidation of institutions still continues, even though the health of most banks has improved and many states long ago liberalized regulations on intrastate branching and interstate merging. This suggests that other factors may also be playing an important role. The large number of mergers involving target banks with assets under $100 million and the preponderance of mergers where both target and acquirer are small banks suggest that some of the merger activity may be an attempt to overcome limitations imposed by small size, such as borrower concentration limits. The fastest-growing segment of the lending market is loans over $1 million, and borrower concentration limits prevent the smallest banks from servicing such loans. This article examines motivations for bank mergers and their regional patterns, and then considers the outlook for further bank consolidation.