The impact of bank holding companies on local market rivalry and performance

The bank holding company movement in banking is, in many respects, the counterpart of the conglomerate movement in the industrial sector. Both are characterized by a substantial amount of merger activity and thus raise questions as to the affect of the acquiring firms on competition. This study uses Tobit analysis and OLS to examine the influence of bank holding companies on rivalry and performance in 154 banking markets (1970–1979). Test results indicate that in markets where bank holding companies are a significant factor rivalry is higher, but so are prices even though profits are not higher, than in markets where bank holding companies are less important. These seemingly conflicting findings may be explained by the finding that significant holding company presence in a market is associated with relatively high noninterest expenses.