December 1996
Federal Reserve Bank of Dallas

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Bank Consolidation: When Less Means More
Jeffery W. Gunther

Lost in all the talk about reorganization and consolidation in the banking industry is one exceedingly important fact-the most noticeable structural change from the consumer's perspective has been an appreciable expansion in the number of local banking offices, together with an associated improvement in the availability of banking services. That is the conclusion Jeffery Gunther draws from an examination at the local market level of the massive structural changes in the banking industry during the 1980s. In addition, evidence presented in this article indicates that liberalization of geographic banking restrictions at the state level helped facilitate the increase in banking offices. The concurrent trends of reductions in the number of banking organizations at the national level and increases in the number of banking offices at the local market level partly reflect the breakdown of long-standing restrictions on banks' geographic expansion.

Banking's Merger Fervor: Survival of the Fittest?
Robert R. Moore

Consolidation in the U.S. banking industry has greatly reduced the number of banks and has the potential to reshape the industry further. Robert Moore examines the characteristics of banks that have been acquired in mergers.

The findings show that banks with weak performance are more likely to be acquired than are banks with strong performance. Acquisition probability tends to be high for banks with low profitability, slow asset growth, a low market share, a low capital-to-asset ratio, and a low ratio of non-small-business loans to assets. Small business loans and bank size, however, do not significantly influence acquisition probability.