Deregulation, Consolidation, and Collusion in American Banking


Going into the 1980s, American banks faced heavy M&A, intrastate branching, and interstate banking restrictions. By the end of the 1980s, most states had lifted these M&A and branching restrictions…



Consequently, the number of mergers increased while the number of new entrants into the market declined. The cost of entering the market was much too high for new entrants since the existing banks merged, became larger, and more expensive to compete against. The overall size of the industry shrank.


Not only did the total amount of mergers increase, but the size of the resulting firms increased directly with acquiring and target bank size. This only made entering the industry more difficult, further shrinking the market. 


Finally, here is a snapshot of the current banking industry. The industry can best be described as an oligopoly. The largest 4 firms in the market own 50% of the market share. Not only is the market smaller, but it is geographically concentrated in New York, London, and Hong Kong, making banking cartels easy to maintain. It’s not surprising, then, that Barclays settled out of court against charges of manipulating LIBOR.

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