The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future

Abstract

This article evaluates the causes, consequences, and future implications of financial services industry consolidation using a value maximization framework. We also reviews the extant research literature within the context of this framework (over 250 references), and suggest future research topics. The evidence is consistent with increases in market power from some types of consolidation, improvements in profit efficiency and diversification of risks on average, and potential improvements in payments system efficiency. However, the data suggest little or no cost efficiency improvements on average; relatively little effect on the availability of services to small customers; and potential costs on the financial system from increasing systemic risk or expanding the financial safety net.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G21, G28, G34, E58, L89