Concentration in Commercial Banking: The Effects of Mergers and Acquisitions

Abstract

Merger and acquisition activities have changed the manner in which banks spatially organize their facilities. Banks are no longer restricted to small and independent market areas; services such as multi-branching (both inter- and intrastate) and freestanding ATMs allow banks to compete in markets outside their immediate areas. In addition, the increasing merger and acquisition activity between banks has reduced the number of bank choices available to the consumer and may result in the loss of bank branches as newly merged banks adjust the number of facilities within a given area. This paper examines the spatial organization of the commercial bank industry by assessing how the consolidation of banks through the merger and acquisition processes is changing bank markets. Findings include an absolute increase in the number of mergers, a substantial loss in the number of unit banks, and a migration of merger activity from Eastern states to the Midwest and West.