Births, Deaths, and Marriages in the U.S. Commercial Banking Industry

By Jeon, Yongil; Miller, Stephen M. | Economic Inquiry, April 2007 | Go to article overview

Births, Deaths, and Marriages in the U.S. Commercial Banking Industry


Jeon, Yongil, Miller, Stephen M., Economic Inquiry


I. INTRODUCTION

The twentieth century witnessed two periods of dramatic regulatory and structural change in the U.S. banking industry--the Great Depression and the events of the 1980s and 1990s. While many important regulations were enacted during the Great Depression, the 1980s and 1990s experienced the repeal or reversal of most Depression-era financial regulations. The 1980s and early 1990s experienced severe financial turbulence the savings and loan crisis followed by another crisis in the commercial banking industry. Those crises led to failure rates among financial institutions not seen since the Great Depression. As a consequence, the 1980s and 1990s saw deregulation that transformed the banking industry from one with much geographic limitation on banking and branching to one now characterized by interstate banking and branching. (1)

The theory of industrial organization addresses several stylized facts or empirical regularities of industry dynamics: (1) entry is common, (2) entry is small scale, (3) survival is low-probability, and (4) entry and exit are highly correlated. Dunne et al. (1988) and Pepall et al. (2002, chap. 6) provide more details. Moreover, the fourth empirical regularity contradicts standard microeconomic theory where entry associates with high-performing, profitable, expanding industries and exit associates with low-performing, unprofitable, contracting industries. The empirical evidence implies that the process resembles a lottery where many firms buy tickets (i.e., enter the market), most firms eventually lose (i.e., exit the market), and only a few firms win (i.e., stay in the market). In other words, long-term, permanent penetration into an existing market presents significant barriers, and thus few new firms succeed, because incumbent firms possess significant advantages. Urban et al. (1984) and Pepall et al. (2002, chap. 6) provide additional discussion.

The commercial banking industry during the recent two-decade period of deregulation experienced those standard empirical regularities with some variations. That is, entry occurred frequently and involved small banks generally. Only a minority of those banks survived. The number of entries and exits both increased dramatically during the past two decades, although exits typically exceeded entries as the number of banks traversed a downward trend. In addition, exits in the regulated banking industry mostly involve mergers, even for failing banks. (2)

The U.S. commercial banking industry possessed institutional characteristics that affect how the industry dynamics corresponded to and differed from those empirical regularities. First, the founding fathers exhibited much concern about preventing concentrations of power. They adopted rules and regulations, in an attempt to prevent such concentrations of power from emerging. That concern bore fruit in the banking industry in the peculiar pattern of bank charters a dual banking system and the regulation of banking activity on a geographic basis. Thus, as we entered the last two decades of the twentieth century, the United States possessed many more banks per capita than most other countries in the world. (3) The deregulation of geographic restrictions on banking activity expectedly led to a decline in the number of banks. Thus, although both entries and exits played a significant role over the past two decades, exits exceeded entries so that the total number of banks fell, as noted.

Second, the banking industry plays a critical role in any nation's economy. The loss of confidence in the banking industry that led to subsequent bank panics and runs provided the typical scenario for recession and depression throughout the nineteenth century. (4) Consequently, the banking industry in the twentieth century exhibited significant control on entry and exit by the various banking regulators. That is, the number of bank entries and exits fell below those that would have naturally occurred in an unregulated banking industry. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Births, Deaths, and Marriages in the U.S. Commercial Banking Industry
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.