XIII. Mergers Absorb Banks
Along with the high level of merger activity since 1980, there has been a large number of failures. Without a doubt, the number of banking institutions in the U.S. has shrunk dramatically in the past twenty years (Meyer 2). In 1980, there were over 12,000 banking organizations and 14,500 banks. In 1997, those number dropped significantly to 7,100 banking organizations and just over 9,000 banks. This was a forty percent decline in the number of banking organizations, and a decline of one-third in the number of banks (Meyer 2). Where did all of these banks go? The merging of banks, caused a disability for smaller banks to compete. Leaving them with two options; they could go out of business or allow another bank to acquire them. While there where about 1,400 commercial bank failures, 3,600 new banks were opened. 35,000 new bank branches were formed, making up for the 1,800 that were closed (Meyer 2). Even with the large drop in the number of banking organizations, the number of banking offices rose sharply from 53,000 in 1980 to over 71,000 in 1997. Furthermore, the number of customers served by each office has declined (Meyer 5). These recent trends in the banking industry have eliminated a large amount of competition leaving the merged banks with the advantage over the small banks.
XIV. Conclusion
Many events led to the start of the bank merger wave in 1980. Many anti-trust laws were passed to maintain market competition, thus avoiding monopolies. These “anti-monopoly later” later became irrelevant. Deregulation finally gave banks what they wanted all along, the ability to consolidate, stating the bank merger wave. This wave of mega-mergers have been making headlines, due to its rapid increasing pace. As there are many reasons why companies decide to merge, egos seem to always be a driving force. Even if there are other reasons behind the merger, power driven businessmen want more power and more money. Egotistical CEO’s, just like most people, associate being the owner of a large corporation with power and, of course, more money. Therefore, mergers give them exactly what they want. In contrast, bank mergers have been a really big cause of concern lately. This is mainly due to the fear of an uncompetitive market that could arise, causing many negative effects: layoffs for employees, decreased small business lending, and uncontrollable price increases for consumers. These mega-banks would drive out small, locally owned banks that are committed to their customers. The result would be impersonal and inferior service from big banks replacing the small friendly community bank, and increasing the chances of monopoly.
Bibliography
Balassa, Bela ed., Edmund Phelps ed., Problems of the Modern Economy. W. W. Norton & Company Inc., New York, 1966.
Brigham, Eugene F., Louis C. Gapenski, Financial Management-Theory and Practice. The Dyden Press, Orlando, 1997.
Dymski, Gary A. The Bank Merger Wave- The Economic Causes and Social Consequenses of `Financial Consolidation. M.E. Sharpe, New York, 1999.
Federal Reserve Board. “Testimony of Governor Laurence H. Meyers.” June 3, 1998. http://www.bog.frb.fed.us/boarddocs/testimony/19980603.htm
BankBoston News Releases. “Fleet and BankBoston Receive Fed Approval for Merger.” September 7, 1999, http://www.bankboston.com/today/about/new_detail_142.asp
Hogg, Alec. “The darder side of banking mergers.” April 16, 1998. http://www.woza.co.za/comps/alec66.htm
Malkiel, Burton G. A Random Walk Down Wall Street. W.W. Norton & Company, New York, 1996.
Moore, Jaimee. “Bank Mergers May Increase your Fees for Checking.” April 22, 1998.
Http://www.swst.com/invest/features/bankmergers.cfm
Peek, Joseph. “Advocacy View Bank Merger’ Effect on Small Firm Lendin.” February 18, 1998.
Http://www.sba.gov/ADVO/press/98-02.html
Rotham, Stephen. “What to expect, what to ask when banks are merging.” May 8, 2000
wysiwyg://133/http://www.bankrate.com/brm/news/bank/19980619a.asp
Scott, David. Wall Street Words. Houghton Mifflin Company, Boston, 1998.
Viscusi, Gregory. “Because Merger Begins With Me.” Bloomberg- The magazine for Market Professionals; March 2000 Vol 9 No 3.