An analysis of changes in bank market structure

Conclusion Several conclusions may be derived from this study. First, there is a great deal of randomness in the determination of market structure. Thus, regulatory authorities also need to look to performance variables directly, as well as structural variables. Second, merger policy at present seems to be effective; at least, mergers do not lead to increases in concentration. Third, the results with respect to the holding company and branching variables suggest that statewide banking in the short run leads to increased concentration in local markets. These results may, however, be only true in the short run. Long run effects may strengthen the short run effects or may work in the opposite direction. Further research should be devoted to the long run determinants of market structure. The opinions in this paper are the authors' and do not necessarily reflect the opinions of the Board or its staff. Financial support from the Center for Public Policy Research of the University of Florida is gratefully acknowledged.     

Dominant firms, “deep pockets,” and local market competition in banking

It has been argued that “deep pockets” and the diversified structure of large firms enable them to engage in predatory pricing in order to force their pricing policy on smaller firms in a market. Although there is some case history evidence that large firms may actively intimidate smaller rivals, there is no evidence of a more generalized nature. Therefore, this study undertakes a cross section investigation of the effects of large, dominant firms on competition in local markets. The basic hypothesis is that the presence of large firms in a market will be reflected in relatively limited rivalry and poor profit and price performance. The analysis focuses on 259 local markets in commercial banking in each of the years 1966, 1970, and 1976. Regression results provide tentative support for the hypothesis. Prices tend to be relatively high and rivalry is weak in markets where dominant firms are relatively important.     

Concentration of world banking and the role of U.S. banks among the 100 largest, 1956–1980

During the past two decades, international banking activity has grown rapidly. With institutional change of such magnitude taking place, it is interesting and potentially useful to look at the nature of the change. This paper examines two dimensions of this change: the trend in concentration of banking assets in the world's largest banks, and the relative position of banks from various countries among the world's largest banks. The data indicate that the percentage of banking deposits accounted for by the world's largest banks generally has increased steadily since 1956. The data also reveal that the importance of U.S. banks within the world's largest banks has declined dramatically since 1956. It is suggested that this trend is the result of the readjustment to the distortions of WWII, the rise of the commercial paper market in the U.S., and the large number of U.S. banks compared to other countries.     

Profits and "contestability": state-by-state evidence from banking markets

Contestability in local banking markets is tested using a structure-performance (S-P) model. OLS and TSLS tests using a 38 state sample of 5,396 banks in 1,474 markets reveal a positive concentration-profitability relationship. This implies that local banking markets are not contestable. However, tests for each state separately show that the S-P relationship exists only in approximately one-fifth of states. F-tests indicate that using a national pooled sample is inappropriate. The results suggest that market structure, including entry conditions, affect performance, consequently the theory of potential competition is more relevant than contestability theory. However, generalizations may be inaccurate.     

Revisions of labeling for personal watercraft: Part 1 – label development

This two-part paper presents a comprehensive case study related to the development and evaluation of warning labels. In particular, this two-part paper describes the development and evaluation of revised warning labels applicable to a class of products known as personal watercraft (PWCs), and serves as an example application of a general warnings design process described by Frantz et al. Part 1, presented in this paper, includes the process of project planning, identifying and analyzing hazards, and developing two preliminary warning labels to address PWC operational hazards. Included are discussions regarding the methods used to address problems frequently encountered in the development of warning labels. Topics of these discussions include the prioritization and selection of hazards to be addressed, message development strategies, avoiding information overload, and organizing the presentation of information using human factors models and concepts. The work conducted in Part 1 resulted in two preliminary labels: one label dealing with issues related to Collision Avoidance and a second label dealing with General Operational Hazards. Part 2, the companion article, describes the process of evaluating and revising the preliminary labeling to produce the final labels. Discussions regarding the methods used to address challenges related to the evaluation and revision of warning labels are provided. As a result of the entire process, revised labels for PWCs with increased uniformity will be used by PWC manufacturers, although flexibility for specific model features or future changes in design will be retained.     

Retail Commercial Banking: An Update on a Period of Extraordinary Change

The 1990s has been an extraordinary period for theretail commercial banking industry. This industryupdate discusses some of the important developmentsand issues they have raised from the standpoint ofcompetition and antitrust policy. A massive mergermovement and removal of restrictions on interstatebanking have raised questions about barriers to entry,the influence of very large banks on the behavior ofother banks in local banking markets, the potentialfor multimarket interdependence among large banks thatmeet one another in numerous markets, and theappropriateness of local markets for analyzingcompetition. Finally, the emergence of electronicbanking and the unbundling of the pricing of serviceshave highlighted the possible importance of switchingcosts for customers in retail banking.     

Asset diversification,firm risk,and risk-based capital requirements in banking

The implications of diversification by firms for risk has been raised particularly in connection with conglomerate mergers. This issue is of special interest in banking now because of a recently implemented policy — risk-based capital guidelines. This study presents results of an empirical investigation into the relationship between diversification of a bank's financial assets and indicators of the risk of insolvency. Results indicate that financial asset diversification, as well as geographic diversification, are related to lower risk.