Bank Merger Essay Research Paper I — страница 3

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financial markets, and even participate in underwriting and capital provision in some states (Dymski 39). In 1982 and 1984, the Federal Reserve changed the merger guidelines making it easier for banks to merge (Dymski 41). 1994 also opened more doors for banks by the passage of the Riegle-Neal Interstate Banking Act which gave banks interstate-merging rights (Dymski 44). VII. Is “Bigness” better? The barriers to mergers and acquisitions across state lines have been crumbling for almost two decades, making way for bigger and bigger companies every day. Since 1980, there has been over 7,000 bank mergers. The pace and dollar amount of these mergers has rapidly accelerated since the beginning of deregulation. Going from190 mergers with $10.2 billion in acquired assets in 1980 to

644 mergers with $123.3 billion in acquired assets in 1987. This pace of merger has continued through to the new millennium with mergers getting larger and larger (Meyer 1). This brings in the question of “Bigness.” Bigness may be defined in terms of the company’s share of the industry in which it operates or absolute size the measure of size being assets, sales, or employment (Balassa 9). Is “Bigness” better? According to George J. Stigler, “The fundamental objection to bigness stems from the fact that big companies have monopolistic power, and this fundamental objection is clearly applicable outside the realm of corporate business” ( Stigler 10). Sumner H. Slichter disagrees, saying: “In fact, in order to stimulate competition, existing restrictions on mergers

should be relaxed, not tightened, and large enterprises, instead of being threatened with breakup, should be given a clear mandate to grow, provided they use fair means” (Balassa 21). VIII. Market concentration as a result The bank merger has also been accompanied by market concentration. There has been a substantial increase in shares of total banking assets held by the largest organizations from 1980 to 1997 (Meyer 2). Most studies that have been done on the link between banking concentration and prices in banking markets conclude that high market concentration is correlated with prices that are unfavorable to consumers (Dymski 89). This market concentration is mainly the response of larger corporations to the passage of the Riegle-Neal Interstate Banking Act ( Meyer 2).

Previous to the passage of this act, horizontal mergers were the only form of branching, and were extensively reviewed before they could be executed (Dymski 44). The Horizontal Merger Guidelines were passed in 1992 to keep horizontal mergers from creating monopolies (Dymski 44). Now, branching is easier through interstate mergers. “If this bank is able to branch statewide, it can do so freely when its financial capacity and market conditions permit; if not, it may engage in a merger strategy within the state to reach the same goal.” (Dymski 45). IX. Effects on labor “The major reason for the surging share prices is a view that these mergers will lead to substantial cost savings through what’s termed economies of scale. That’s another way of saying, greater volumes of

business will be managed by smaller structures- and fewer people” (Hogg 1). Mergers and acquisitions have and may continue to produce many negative effects. There is no doubt that mergers are beneficial to the managers and the owners of companies involved. But there are social issues involved that are not even considered before a company merges. Big companies keep joining with other companies becoming larger while leaving many people without jobs. This process of downsizing, which the buying firm considers the retooling of their bank strategy, has become a regular practice due to more exposure to market force, and entry pressures. Changes in technology of the newly formed firm and the rise of “supermarket branches” can be attributed as the reason for downsizing.

“According to Radecki (1997), some 4,000 bank offices are supermarket branches, and more are on the way; he estimates that, when fully implemented, the adoption of this delivery method could reduce bank employment by about a tenth.” (Dymski 43). Along with decrease in banking institutions and an increase in technology, comes a decrease in the number of workers needed and an increase in lay-offs. X. Small business lending Several studies have been done exploring the concern that continued shrinkage of the banking industry through mergers will lead to a decrease in small-business credit (Dymski 93). According to research, there are three major effects on small business lending that could occur from a bank merger. The first effect is the static effect, when small business