Consolidation in the U.S. Banking Industry: Is the Long, Strange Trip About to End?

Abstract

Consolidation in the U.S. banking industry has resulted in a reduction of nearly 50 percent in the number of bank and thrift organizations over the last 20 years. Our paper reviews the structural changes that have occurred in the industry over this period; reexamines the macroeconomic forces and microeconomic motives behind the consolidation trend; reviews the results of empirical research on how consolidation has affected such things as banking competition, efficiency, profitability, shareholder value, and the availability and pricing of banking services; and speculates on how the current forces of change might affect the industry's structure going forward. As the 21st century unfolds, we find that a number of the forces driving the consolidation trend in the past are no longer relevant or are greatly diminished in influence. By incorporating this knowledge into our analysis, we anticipate that the banking industry may experience only slight to moderate declines in the number of organizations over the next five to ten years.

Keywords: Banking consolidation, banking industry structure, forecasts

JEL Classification: G21, G28, C22