| Abstract: | Spurred by deregulation, cost, and risk factors, commercial bank mergers have accelerated sharply in recent years. Many banks appear to be positioning themselves for the advent of interstate banking through holding company or reciprocal branching arrangements. Yet, the performance effects of mergers among operating U.S. banks (as opposed to holding company acquisitions) have been examined both infrequently and inconclusively. This study focuses upon the characteristics and performance effects of national bank mergers occurring during the 1970–1980 period. Acquiring national banks were found to have lower operating efficiency and productivity than nonmerging banks and their profitability did not increase following the mergers, but credit availability, productivity, loan losses, deposit service charges, and interest-rate risk did rise. Frequency of merger activity did not significantly influence bank profitability or growth, but did augment stockholder risks and increase business and real-estate credit. In the aggregate, national bank mergers appeared to result neither in significant service benefits nor in significant service costs to the public.Spurred by deregulation of the industry, rising cost pressures, and increased operating risk, merger transactions among U.S. banks have soared in recent years. During the 1982–1986 period, for example, banking led all other industries in the number of consummated mergers and consistently was among the ten leading U.S. industries in the estimated market value of merger agreements. Moreover, the recent upsurge in reciprocal interstate banking agreements and proposals for fully legalized interstate banking hold out the prospect for a further acceleration in bank merger transactions in the years ahead. In view of the fact that legislation in more than 30 states now permits some form of interstate banking by merger or de novo entry and a June 1985 ruling of the U.S. Supreme Court has legitimized regional banking compacts, the public and private impact of bank mergers becomes of much greater importance as a research focus.Despite the magnitude of recent bank merger transactions and their implications for the public, the research literature in this area is surprisingly meager and often contradictory. This article is an attempt to focus more sharply on recent research findings, provide additional evidence concerning the effects of mergers on the financial performance of banks, and assess their impact on the public's interest in an adequate supply of financial services. |
