Banking Industry Consolidation: Past Changes and Implications for the Future

Because there was a 25 percent reduction in the number of banks between 1980 and 1993, the popular impression has been one of a "shrinking" banking industry. Daniel Nolle challenges this view by dissecting the complexity of banking consolidation, particularly given the radical structural changes in commercial banking since 1980. While increased consolidation can be accounted for by heightened competitive pressures that force banks to look for cost savings, greater revenues, or quality improvements via mergers, it has also been stimulated by recent changes in state laws that restricted geographic expansion of banking. The data shows that from 1980 to 1993, 5,202 banks disappeared through mergers, which was three and one-half times the 1,456 banks that failed. The majority of mergers were "intramergers" (within the same holding company), but the number of "intermergers" (between unafiliated banks) has also risen over the past several years. It is Nolle's conclusion that a review of the data on nation-wide trends in banking company structure reveals a complex story I which the distinction between OSMBHCs and MSMBHCs is significant. The whole question of what form of corporate organization banking companies choose is complicated by differences in state banking laws, differences in interstate banking laws, and differences in the pace at which those laws have been changed over this period of time. Such consolidation is expected to continue, especially given increased competition and an expansion of geographic powers. As the twenty-first century approaches, we can expect there to be thousands of banks and thousands of bank holding companies.