Banking Industry Consolidation and Market Structure: Impact


Download Banking Industry Consolidation and Market Structure: Impact


Preview text

Banking Industry Consolidation and Market Structure:
Impact of the Financial Crisis and Recession
David C. Wheelock
The number of U.S. commercial banks and savings institutions declined by 12 percent between December 31, 2006, and December 31, 2010, continuing a consolidation trend begun in the mid1980s. Banking industry consolidation has been marked by sharply higher shares of deposits held by the largest banks—the 10 largest banks now hold nearly 50 percent of total U.S. deposits. However, antitrust policy is predicated on the assumption that banking markets are local in nature, and enforcement has focused on preventing bank mergers from increasing the concentration of local banking markets. The author finds little change over time in the average concentration of local banking markets or the average number of dominant banks in them, even during the recent financial crisis and recession when numerous bank failures and several large bank mergers occurred. Concentration did not increase substantially, on average, in markets where mergers occurred among banks when both the acquiring and acquired banks had existing local offices, though rural markets generally saw larger increases in concentration from such mergers than did urban markets. Although the structures of local banking markets, on average, have changed little since the mid-1980s, deposit concentration has continued to increase at the level of U.S. Census regions. As technology evolves and the costs of obtaining banking services from distant providers fall further, local market characteristics may become less relevant for analysis of competition in banking. (JEL G21, G28, L41)
Federal Reserve Bank of St. Louis Review, November/December 2011, 93(6), pp. 419-38.

T he recent financial crisis and recession produced a sharp increase in the number of commercial bank and savings institution failures in the United States. Mergers of non-failed commercial banks and savings institutions (hereafter “banks”) eliminated still more banks, and in total, the number of U.S. banks fell by 12 percent between December 31, 2006, and December 31, 2010.1 Over the same period, the share of total U.S. deposits held by the 10 largest commercial banks rose from 44 to 49 percent, continuing a trend that began in the

1 The Federal Deposit Insurance Corporation (FDIC) often resolves bank failures by arranging mergers of failed institutions with other banks. These are referred to as “assisted” mergers. Mergers that do not involve failed institutions are referred to as “unassisted” mergers. During 2007-10, 270 commercial banks and 54 savings institutions, representing 4 percent of commercial banks and savings institutions in operation at the end of 2006, failed; unassisted mergers absorbed another 893 commercial banks and 109 savings institutions. These data refer to FDIC-insured commercial banks and savings institutions located in U.S. states and the District of Columbia and were obtained from Historical Statistics on Banking, Tables CB02 and SI02 (http://www2.fdic.gov/hsob/index.asp).

David C. Wheelock is a vice president and deputy director of research at the Federal Reserve Bank of St. Louis. The author thanks Subhayu Bandyopadhyay, Alton Gilbert, and Adam Zaretsky for comments on a previous draft of this article. David A. Lopez provided research assistance.
© 2011, The Federal Reserve Bank of St. Louis. The views expressed in this article are those of the author(s) and do not necessarily reflect the
views of the Federal Reserve System, the Board of Governors, or the regional Federal Reserve Banks. Articles may be reprinted, reproduced, published, distributed, displayed, and transmitted in their entirety if copyright notice, author name(s), and full citation are included. Abstracts, synopses, and other derivative works may be made only with prior written permission of the Federal Reserve Bank of St. Louis.

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

NOVEMBER/DECEMBER 2011

419

Wheelock
early 1990s toward greater concentration of total U.S. deposits among the largest banks.2
Federal law prohibits any bank from obtaining more than 10 percent of total U.S. deposits or more than 30 percent of a single state’s total deposits by acquiring other non-failed banks, and some states have imposed even lower deposit share limits.3 Further, antitrust enforcement prevents mergers of non-failed banks that would significantly increase the concentration of local banking markets. However, antitrust policy does not (i) prevent acquisitions of failed banks that increase local market concentration or (ii) attempt to limit increases in concentration that do not result from mergers. Nonetheless, during the 1990s, local urban banking markets generally did not become significantly more concentrated, despite increases in the deposit shares of the largest U.S. and regional banks (Amel, 1996, and Dick, 2006).
Banking industry consolidation has since continued, spurred in part by the recent financial crisis and recession. This article examines changes since 1999 in the concentration of U.S. banking markets, defined both at the local level (metropolitan statistical areas [MSAs] and nonMSA rural counties) and at the Census-region level. It examines whether the characteristics of urban and regional banking markets observed during the 1990s continued over the subsequent decade. The article focuses in particular on the years 2006-10 to gauge whether trends in banking market structures continued during the financial crisis and recession. The resolution of failed banks during 2007-10 did not increase the concentration of most local banking markets (Wheelock, 2011). However, unassisted mergers accounted for more of the decline in the number of U.S. banks during 2007-10 than did bank failures, and therefore
2 In both 1984 and 1993, the 10 largest banks held 15 percent of total U.S. bank deposits. However, by 1999, the 10 largest banks held 28 percent of total U.S. bank deposits. These data are for December 31 of the year indicated for U.S. commercial banks located in the 50 states and the District of Columbia.
3 Caps on deposit shares were imposed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Adequately capitalized banks may exceed the caps by acquiring failing or FDICassisted banks. Banks may also exceed the caps through internally generated growth. See Spong (2000) for additional details.

potentially had a larger impact on the structures of banking markets.
Following the approach of Dick (2006), this article uses both the Herfindahl-Hirschman index (HHI) and the number of dominant firms in a market—that is, the minimum number of banks that, combined, hold at least 50 percent of a market’s total deposits—to measure market concentration. However, unlike Dick (2006), this article examines trends in the concentration of rural banking markets as well as MSAs, and it includes both commercial banks and savings institutions in the analysis of market concentration (for comparison, the article also reports results for commercial banks only).4 Further, the article investigates the impact of unassisted mergers on banking market concentration during 2007-10. The results show that, in general, local banking markets did not become significantly more concentrated during 2006-10 but, as Dick (2006) finds for the 1990s, concentration increased markedly at the level of U.S. Census regions.
The next section investigates trends in bank deposit concentration for both local banking markets (MSAs and rural counties) and Census regions. The following section examines trends in the number of dominant banks, again at the levels of local banking markets and Census regions. Subsequently, the article examines the impact of unassisted mergers during 2007-10 on the concentration of deposits for MSAs and rural counties. The final section provides study conclusions.
BANKING CONCENTRATION: LOCAL AND REGIONAL PATTERNS
The recent decline in the number of U.S. banks has continued a trend dating back to the mid-1980s (Figure 1). Hundreds of banks failed in the late 1980s and early 1990s. Many more were absorbed through unassisted mergers, spurred by the relaxation of legal restrictions on bank
4 Regulators consider the presence of savings institutions when evaluating the implications of proposed bank mergers on market competition but down-weight the shares of deposits held by savings institutions by one-half in formal analysis of market concentration. See Gilbert and Zaretsky (2003) for analysis of the methods and assumptions used by regulators in evaluating banking market competition.

420

NOVEMBER/DECEMBER 2011

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

Figure 1
Number of U.S. Commercial Banks and Savings Institutions (1984-2010)

Number of Institutions 16,000
14,000
12,000

Commercial Banks Savings Institutions

10,000

8,000

6,000

4,000

2,000

0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Wheelock

branching by many states and the federal government (Amel, 1996).5 The number of U.S. commercial banks reached a post-World War II peak of 14,495 banks in 1984. By the end of 2010, the number had fallen to 6,532. Similarly, the number of Federal Deposit Insurance Corporation (FDIC)insured savings institutions fell from 3,566 to 1,128 over the same period (the number of savings institutions peaked at 3,740 in 1986).
Despite an increase in the share of total U.S. deposits held by the very largest banks, the concentration of deposits among banks in local markets changed little, on average, from the mid-1980s through the 1990s (Amel, 1996, and Dick, 2006). Furthermore, the advent of interstate bank branching in 1997 had little immediate impact on either
5 The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permitted interstate branching beginning in 1997 but gave states the option to restrict de novo branching by banks headquartered in other states. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Section 613) substantially removed remaining restrictions on interstate branching by eliminating this option.

local banking market concentration or state-level measures of banking market competition (Dick, 2006, and Yildirim and Mohanty, 2010).6
Bank regulators use Department of Justice (DOJ) guidelines for market concentration to evaluate the competitive effects of proposed bank mergers and acquisitions. Proposed transactions that would substantially increase market concentration are subject to more scrutiny and are more likely to be rejected on antitrust grounds than transactions that would not increase concentration significantly. Regulators use data on deposits held by individual bank branch offices, which banks are required to report on June 30 of each year, to measure the concentration of local banking markets.7
6 Yildirim and Mohanty (2010) find that state banking markets could be characterized as monopolistically competitive both before and after deregulation; however, they also find that the level of competition declined in 30 states after deregulation, increased in 10 states, and did not change significantly in 10 others.
7 Summary of Deposits data are available from the FDIC (http://ww2.fdic.gov/sod/index.asp).

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

NOVEMBER/DECEMBER 2011

421

Wheelock

Ordinarily, proposed mergers are not challenged on competitive grounds unless they would result in a post-merger HHI value of more than 1800 points and an increase in the index of more than 200 points in the relevant banking market.8
A premise of antitrust enforcement is that banking markets are local in nature, and regulators calculate pro forma HHI values for local banking markets (typically MSAs or non-MSA rural counties) to evaluate the competitive implications of proposed bank mergers.9 In the past, legal restrictions on branching and high transportation and communications costs made it difficult and costly for the public to obtain services from geographically distant banks. Further, many studies found that deposit interest rates were lower, and loan interest rates were higher, in more concentrated local banking markets, suggesting that concentration was an important determinant of the competitiveness of banking markets.10 However, branching deregulation, along with advances in informationprocessing and communications technologies, have reduced the cost of obtaining financial services from distant banks and raise the question whether larger geographic areas, such as states, Census regions, or even the nation as a whole, are more relevant for evaluating banking competition. Nonetheless, studies find that (i) households and small businesses, to a substantial degree, continue to obtain their financial services from

8 The HHI is calculated as the sum of the squared market shares of

each firm competing in a market—that is, HHI = Σ market share2,

i

i

where there are i = 1, …, n firms in the market and market sharei

is the percentage of market output (deposits in the present context)

produced by the ith firm. Guidelines for the use of the HHI in anti-

trust enforcement are established by the DOJ

(www.justice.gov/atr/public/guidelines/6472.htm).

9 Regulators have defined some U.S. banking markets over larger geographic areas, such as multiple counties, and occasionally they redefine markets based on changes in commuting patterns, trade areas, transportation networks, and so forth. Current definitions for all U.S. banking markets are available from the Federal Reserve Bank of St. Louis (http://cassidi.stlouisfed.org/).

10 The relationship between concentration and competition is potentially ambiguous. For example, if barriers to entry and exit are sufficiently low, then even a monopolist will not earn excess profits in the long run because other firms will enter and drive down the market price if the incumbent firm sets its price above marginal cost (Baumol, Panzar, and Willig, 1988). See Berger et al. (2004) for further discussion of the relationship between market concentration and competition and a review of recent research on the determinants and effects of concentration and competition in banking.

banks located in their communities11 and (ii) the structure of local banking markets continues to affect the level of competition within those markets. For example, Hannan and Prager (2004) find that banks that operate in a single MSA or nonMSA county market offer lower deposit interest rates when those markets are more concentrated. However, the study also finds that the relationship between local concentration and deposit interest rates is weaker in markets where the share of banks operating in more than one market is higher. Still, the authors conclude that market structure continues to influence the competitive behavior of banks operating in local markets.
Dick (2006) investigates whether the level of bank concentration changed significantly between 1993 and 1999 across MSAs and Census regions to assess the impact on banking market concentration of the removal of most restrictions on interstate branching in 1997. She finds that the mean and median HHI values for MSAs declined slightly between 1993 and 1999, whereas HHI values increased for all nine Census regions, with the percentage increases ranging from 17 percent in the Pacific region to 421 percent in the South Atlantic region.
Local Market Concentration
The patterns that Dick (2006) observes for 1993-99 continued in later years. Table 1 reports summary information about the distribution of HHI values across MSAs in 1999, 2006, and 2010. The values reported in Panel A of Table 1 are based on total deposits data for commercial banks only, as in Dick (2006), whereas those reported in Panel B are based on data for both commercial banks and savings institutions.12 The information in Panel A shows that both mean and median HHI values declined by more than 100 points between
11 See Gilbert and Zaretsky (2003) for references to these studies.
12 All subsequent tables in this article are divided similarly: Information reported in Panel A is based on data for commercial banks only, whereas information reported in Panel B is based on data for both commercial banks and savings institutions. Bank regulators usually weight the deposits of savings institutions by 0.5 in calculating HHI values to measure the concentration of banking markets. However, this article assigns them full weight but also presents results based on data that exclude savings institution deposits altogether.

422

NOVEMBER/DECEMBER 2011

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

Wheelock

Table 1
Descriptive Statistics for the HHI (MSAs)
Bank type
Panel A (commercial banks) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation
Panel B (commercial banks and savings institutions) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation

1999
361 516 8006 1911.8 1375 1746 2198 905.92
361 374 5726 1530.6 1139 1439 1750 626.25

2006
361 515 8346 1760.7 1255 1588 1971 867.02
361 408 8145 1527.1 1089 1346 1705 835.85

2010
366 539 6666 1703.8 1188 1459 1902 860.39
366 488 7247 1535.8 1089 1318 1689 841.60

NOTE: Q1 is the first quartile of the distribution of the data; Q3 is the third quartile. Five cities were defined as MSAs between June 30, 2006, and June 30, 2010: Lake Havasu (AZ) and Palm Coast (FL) were designated as MSAs in December 2006; Cape Girardeau (MO), Manhattan (KS), and Mankato-North Mankato (MN) were designated as MSAs in November 2008.

1999 and 2006 for commercial banks, whereas the information in Panel B shows that median HHI values declined by 93 points and mean HHI values declined by 4 points for commercial banks and savings institutions.13 Thus, for commercial banks, the decline in mean and median HHI values between 1993 and 1999 at the MSA level noted by Dick (2006) continued through 2006. Further, these trends also continued during 200710, despite the financial crisis and recession and resulting wave of bank failures and mergers.
Table 2 reports similar information for nonMSA (i.e., “rural”) banking markets. Rural banking markets generally are more concentrated than urban markets. For example, the median HHI value for non-MSA counties in 2010 was 3195 (based on data for commercial banks only), whereas the median HHI value for MSAs was

13 Many commercial banks and savings institutions are controlled by bank (or thrift) holding companies, which may have a controlling interest in more than one bank in a given market. Bank regulators and the DOJ consider common control of multiple banks in a market when evaluating proposed bank mergers. However, in this article no adjustment is made for common control of multiple banks in a market in calculating measures of market concentration, which seems consistent with Dick’s (2006) approach. Although failing to adjust for common ownership would tend to lead to understatement of the HHI, on average, holding companies have increasingly tended to merge their multiple bank subsidiaries into a single bank, which lessens this bias in more recent years and, more importantly, would tend to upwardly bias the unadjusted changes in HHI over time. Hence, on average, increases in unadjusted HHI likely overstate the extent to which concentration has increased. Since the observed increases in unadjusted HHI in local banking markets have been small, on average, the average increase in concentration taking account of common control of multiple banks in a market would likely be even smaller.

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

NOVEMBER/DECEMBER 2011

423

Wheelock

Table 2
Descriptive Statistics for the HHI (Non-MSA Rural Counties)

Bank type
Panel A (commercial banks) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation

1999
2023 830 10000 4032.6 2405 3399 5054 2274.11

Panel B (commercial banks and savings institutions) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation

2027 739 10000 3684.3 2143 3010 4558 2236.58

NOTE: Q1 is the first quartile of the distribution of the data; Q3 is the third quartile.

2006
2024 891 10000 3821.5 2268 3199 4831 2187.70
2026 735 10000 3587.8 2073 2955 4392 2153.05

2010
2015 839 10000 3791.6 2243 3195 4740 2171.10
2017 704 10000 3594.9 2126 2965 4405 2144.41

1459. However, as with MSA markets, mean and median HHI values for rural markets declined between 1999 and 2010. Thus, in mid-2010, the mean and median concentrations of both MSA and rural banking markets were substantially lower than in 1999 (and in 1993 for MSA markets) even though there were far fewer banks and savings institutions in the United States in 2010 than in either 1993 or 1999.
Regional Concentration
That the substantial reduction in the number of banks in the United States from the 1990s through 2010 did not increase the average concentration of local banking markets is consistent with the active enforcement of antitrust policy by bank regulators and the DOJ, whose officials generally deny bank merger applications that would substantially increase the concentration

of local banking markets. However, antitrust policy is not applied in banking over larger geographic areas, such as Census regions (though, as noted previously, federal law prohibits individual banks from holding more than 10 percent of total U.S. bank deposits, or 30 percent of a state’s total deposits, if that level of deposits is obtained through acquisitions of non-failed banks). Dick (2006) finds that HHI values increased substantially between 1993 and 1999 for all nine U.S. Census regions.
Table 3 reports HHI values for U.S. Census regions for 1999, 2006, and 2010.14 HHI values vary widely across U.S. Census regions. For 2010, HHI values range from 341 for the East South
14 Dick’s (2006) data exclude savings institutions and rural market deposits. By contrast, the information reported in Table 3 is based on data that include both MSA and rural deposits. However, HHI values and trends are not qualitatively different from those reported in Table 3 if rural deposits are excluded from the analysis.

424

NOVEMBER/DECEMBER 2011

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

Wheelock

Table 3
HHI Values (Census Regions)
Census region
Panel A (commercial banks) New England Middle Atlantic East North Central West North Central South Atlantic East South Central West South Central Mountain Pacific
Panel B (commercial banks and savings institutions) New England Middle Atlantic East North Central West North Central South Atlantic East South Central West South Central Mountain Pacific

1999
1419 577 135 167 589 233 285 370 1295
571 371 101 145 473 215 229 310 784

2006
1194 914 284 712 845 297 501 645 1155
539 618 226 631 600 277 416 723 781

2010
1377 997 381 554 639 341 508 796 1183
669 718 315 492 517 319 446 650 1069

NOTE: U.S. Census regions include the following states: New England (CT, ME, MA, NH, RI, VT); Middle Atlantic (NJ, NY, PA); East North Central (IN, IL, MI, OH, WI); West North Central (IA, KS, MN, MO, NE, ND, SD); South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV); East South Central (AL, KY, MS, TN); West South Central (AR, LA, OK, TX); Mountain (AZ, CO, ID, NM, MT, UT, NV, WY); and Pacific (AK, CA, HI, OR, WA).

Central region to 1377 for the New England region (Panel A). However, regional HHI values increased between 1999 and 2010 in each region except the New England and the Pacific regions, with the largest increases occurring between 1999 and 2006. When savings institutions are included in the analysis (Panel B), the interregional range of HHI values was narrower. In addition, HHI values rose between 1999 and 2010 in all regions. Thus, regardless of whether savings institutions are included in the analysis, HHI values increased in most, if not all, regions, indicating increased concentration at the regional level. Further, in most regions, a higher percentage of the increase in HHI values occurred during 1999-2006 than

during 2006-10. Thus, the financial crisis and recession did not generally cause a substantial increase in banking concentration, as reflected in HHI values, at either local or regional levels.
DOMINANT AND FRINGE FIRMS
In addition to changes in market concentration, Dick (2006) also investigates changes over time in the number of “dominant” and “fringe” banks in urban and regional banking markets. She defines dominant banks as the smallest set of banks that jointly hold at least half of a market’s total deposits. All other banks in a market are fringe banks. Similarly, regionally dominant banks

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

NOVEMBER/DECEMBER 2011

425

Wheelock

Table 4
Descriptive Statistics for the Number of Dominant Banks (MSAs)

Bank type
Panel A (commercial banks) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation

1999

2006

2010

361

361

366

1

1

1

8

7

7

2.7

2.9

3.0

2

2

2

3

3

3

3

3

3

0.91

1.03

1.03

Panel B (commercial banks and savings institutions) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation

361

361

366

1

1

1

11

9

7

3.2

3.3

3.2

3

3

3

3

3

3

4

4

4

1.08

1.14

1.07

NOTE: Q1 is the first quartile of the distribution of the data; Q3 is the third quartile. Five cities were defined as MSAs between June 30, 2006, and June 30, 2010: Lake Havasu (AZ) and Palm Coast (FL) were designated as MSAs in December 2006; Cape Girardeau (MO), Manhattan (KS), and Mankato-North Mankato (MN) were designated as MSAs in November 2008.

are those that jointly hold at least half of a region’s total deposits. Dick (2006) finds that most urban markets had two or three dominant banks in both 1993 and 1999. Further, the average number of fringe banks fell slightly (from 19 banks to 18 banks), but the median number of fringe banks was 11 banks in both years.
Table 4 reports summary statistics on the number of dominant banks across MSAs for 1999, 2006, and 2010.15 The mean and median number of dominant banks, based on data for only commercial banks or for both commercial banks and savings institutions, changed little between 1999 and 2010. The ranges also varied little across time.
15 As in calculating the HHI, this article makes no adjustments for cases in which a single owner has a controlling interest in more than one bank in a given market in calculating the number of dominant banks in that market (see footnote 13).

Table 5 shows the frequency distribution of the number of dominant banks for each year. In 1999, 15 (of 361) MSAs had only one dominant bank (Panel A). That number had increased slightly by 2010, when 23 (of 366) MSAs had only one dominant bank. However, the number of MSAs with four or more dominant banks also increased over time, from 48 (of 361) in 1999 to 86 (of 366) in 2010.
As shown in Panel B of Table 4, the mean number of dominant banks in MSA markets is slightly larger if savings institutions are included in the analysis, but the median remains at three banks from 1999 to 2010 and the mean and median numbers changed little between 1999 and 2010. Furthermore, the number of markets with four or more dominant banks increased from 107 (of 361) in 1999 to 124 (of 366) in 2010 (see Table 5). Hence,

426

NOVEMBER/DECEMBER 2011

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

Wheelock

Table 5
Distribution of the Number of Dominant Banks (MSAs)

Panel A (dominant commercial banks) 1 2 3 4 5 6 7 8 Total MSAs

1999 Frequency %

15

4.2

157 43.5

141 39.1

35

9.7

9

2.5

3

0.8





1

0.3

361

Panel B (dominant commercial banks and savings institutions)

1

7

1.9

2

83 23.0

3

164 45.4

4

76 21.1

5

22

6.1

6

5

1.4

7

3

0.8

8





9





10





11

1

0.3

Total MSAs

361

2006 Frequency %

19

5.3

117

32.4

149

41.3

53

14.7

17

4.7

3

0.8

3

0.8





361

15

4.2

66

18.3

153

42.4

83

23.0

34

9.4

6

1.7

2

0.6

1

0.3

1

0.3









361

2010 Frequency %

23

6.3

88 24.0

169 46.2

62 16.9

16

4.4

7

1.9

1

0.3





366

15

4.1

69 18.9

158 43.2

84 23.0

30

8.2

9

2.5

1

0.3

















366

NOTE: Five cities were defined as MSAs between June 30, 2006, and June 30, 2010: Lake Havasu (AZ) and Palm Coast (FL) were designated as MSAs in December 2006; Cape Girardeau (MO), Manhattan (KS), and Mankato-North Mankato (MN) were designated as MSAs in November 2008.

the results indicate that the decline in the number of banks in the United States since 1999 has not caused the number of dominant banks in most MSA banking markets to fall.
Rural (non-MSA) banking markets tend to be more concentrated than urban banking markets. Furthermore, Wheelock (2011) finds that acquisitions of failed banks by in-market competitors resulted in substantial increases in concentration in some rural banking markets during 2007-10 but no significant increases in any large urban markets. Table 6 reports information on the num-

ber of dominant banks in rural markets in 1999, 2006, and 2010. The mean and median numbers of dominant banks in rural markets are smaller than those of MSA markets, reflecting the tendency toward greater deposit concentration of rural banking markets. However, as with MSAs, the distributions of dominant banks in rural markets changed little between 1999 and 2010 (Table 7). Thus, as reflected in both HHI values and the distributions of dominant banks, and regardless of whether savings institutions are included in the analysis, the market structure of

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

NOVEMBER/DECEMBER 2011

427

Wheelock

Table 6
Descriptive Statistics for the Number of Dominant Banks (Non-MSA Rural Counties)

1999

2006

2010

Panel A (commercial banks) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation

2023

2024

2015

1

1

1

5

5

5

1.7

1.8

1.8

1

1

1

2

2

2

2

2

2

0.69

0.73

0.74

Panel B (commercial banks and savings institutions) No. of markets Minimum Maximum Mean Q1 Median Q3 Standard deviation

2027

2026

2017

1

1

1

6

5

6

1.9

1.9

1.9

1

1

1

2

2

2

2

2

2

0.77

0.80

0.78

NOTE: Q1 is the first quartile of the distribution of the data; Q3 is the third quartile.

Table 7
Distribution of the Number of Dominant Banks (Non-MSA Rural Counties)

1999 Frequency %

2006 Frequency %

2010 Frequency %

Panel A (dominant commercial banks) 1 2 3 4 5 Total rural markets

835 962 202 22
2 2023

41.28 47.55 9.99 1.09 0.10

780 960 247 34
3 2024

38.54 47.43 12.20 1.68 0.15

788 947 242 35
3 2015

39.11 47.00 12.01 1.74 0.15

Panel B (dominant commercial banks and savings institutions)

1

699

2

979

3

298

4

46

5

3

6

2

Total rural markets

2027

34.48 694

48.30 927

14.70 354

2.27

40

0.15

11

0.10



2026

34.25 705

45.76 951

17.47 306

1.97

49

0.54

5



1

2017

34.95 47.15 15.17 2.43 0.25 0.05

428

NOVEMBER/DECEMBER 2011

F E D E R A L R E S E RV E B A N K O F ST. LO U I S R E V I E W

Preparing to load PDF file. please wait...

0 of 0
100%
Banking Industry Consolidation and Market Structure: Impact