A just released study by economists at the Federal Reserve Bank of New York gives new evidence of increased concentration in the banking industry in the 1990s. According to data compiled by Kevin J. Stiroh and Jennifer P. Poole, the nation's 10 largest bank holding companies dramatically expanded their share of bank loans and other industry assets, from 25.6% in 1990 to 44.8% in 1999 (chart). The share of assets for the top 50 holding companies rose from 55.3% to 68.1% over the same stretch.
This gain doesn't represent any internal growth spurt by large banks because of increased efficiencies. Rather, virtually all the jump in market share came from mergers and acquisitions, report Stiroh and Poole. While some banks expanded existing subsidiaries in addition to growing through combinations, such expansion as a whole "was an inconsequential factor."
In fact, Stiroh and Poole discovered that big banks lagged far behind smaller financial institutions in terms of adding new assets in the 1990s. They compared total assets of today's 50 largest bank holding companies to the assets of their component companies in 1990 and found a 25% hike. Yet smaller financial institutions grew by 41% over the same period.
So far, the growth of the smaller banks and the development of alternative nonbank lending sources has mostly muted regulatory concern about big banks' increased market share. But a continuing trend toward concentration could raise red flags for regulators.