The Consolidation of the Financial Services Industry


Consolidation has changed the nature of the financial services industry. Large multipurpose financial companies now offer retail customers not only traditional deposit and lending services but mutual fund, insurance, and brokerage services. For their corporate clients, these same companies offer lines of credit as well as payments, risk management, and securities underwriting services. In the past, U.S. banks were restricted from providing all of these services, but recent regulatory and court decisions have allowed them to expand their activities. More generally, globalization continues to increase the pressure for uniform legal and regulatory treatment across national boundaries. These developments raise several important questions: Why has the financial services industry experienced consolidation? Are banks and other financial services providers more efficient as a consequence? Has globalization of financial markets enhanced competitiveness? Will consolidation change the role of the central bank? Will small businesses and small depositors get lost in the shuffle?

At the Conference on the Consolidation of the Financial Services Industry, leading researchers from the academic community, regulatory agencies, and the financial services industry explored these and other questions. Our hope is that rigorous research subjected to thorough review will provide answers and suggest appropriate actions for policymakers. Proceedings of the conference will be published in a special issue of the Journal of Banking and Finance edited by Allen N. Berger of the Board of Governors of the Federal Reserve System and Rebecca S. Demsetz and Philip E. Strahan, both of the Federal Reserve Bank of New York.


WELCOMING REMARKS

William J. McDonough

Federal Reserve Bank of New York


SESSION 1: PERSPECTIVES ON BANK CONSOLIDATION

Chair: Paul B. Bennett
Federal Reserve Bank of New York

"Megamergers and Expanded Scope: Theories of Bank Size and Activity Diversity"

Arnoud W. A. Boot, University of Amsterdam

Todd T. Milbourn, London Business School

Anjan V. Thakor, University of Michigan

Discussion: Mark Flannery, University of Florida

View Abstract


"Bank Capital and Bank Structure: A Comparative Analysis of the U.S., U.K., and Canada"

Anthony Saunders, New York University

Berry K. Wilson, Federal Communications Commission

Discussion: Randall S. Kroszner, University of Chicago

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SESSION 2: THE CAUSES AND CONSEQUENCES OF BANK MERGERS

Chair: Rebecca S. Demsetz
Federal Reserve Bank of New York

"Interest-Rate Exposure and Bank Mergers"

Benjamin C. Esty, Harvard Business School

Bhanu Narasimhan, Massachusetts Institute of Technology

Peter Tufano, Harvard Business School

Discussion: Christopher M. James, University of Florida

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"Telecommunication Versus Processing Cost and the Consolidation of the Payments System"

Diana Hancock, Federal Reserve Board

David B. Humphrey, Florida State University

James A. Wilcox, University of California, Berkeley

Discussion: Darryll E. Hendricks, Federal Reserve Bank of New York

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"The Poor Performance of Foreign Bank Subsidiaries: Were the Problems Acquired or Created?"

Joe Peek, Boston College

Eric S. Rosengren, Federal Reserve Bank of Boston

Faith Kasirye, Federal Reserve Bank of Boston

Discussion: Robert A. Eisenbeis, Federal Reserve Bank of Atlanta

View Abstract


Moderator: Beverly J. Hirtle
Federal Reserve Bank of New York


Lunch Speaker

"Financial Consolidation: Dangers and Opportunities"

Featured Speaker: Frederic S. Mishkin, Columbia University


SESSION 3: BANK CONSOLIDATION AND SMALL BUSINESS LENDING

Chair: Philip E. Strahan
Federal Reserve Bank of New York

"How Important are Small Banks to Small Business Lending? New Evidence from a Survey of Small Firms"

Jith Jayaratne, Federal Reserve Bank of New York

John D. Wolken, Federal Reserve Board

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"Banking Consolidation and the Availability of Credit to Small Businesses"

Rebel A. Cole, Employment Policies Institute

Nicholas Walraven, Federal Reserve Board

Discussion: Mitchell A. Petersen, Northwestern University

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"Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation"

Robert DeYoung, Office of the Comptroller of the Currency

Lawrence G. Goldberg, University of Miami

Lawrence J. White, New York University

Discussion: Richard J. Rosen, Indiana University

View Abstract


PANEL: BANK MERGERS--WHAT SHOULD POLICYMAKERS DO?

Chair: Elinor H. Solomon, George Washington University

Panelists: Arnoud W. A. Boot, University of Amsterdam

Charles W. Calomiris, Columbia University

Anil K Kashyap, University of Chicago

Myron L. Kwast, Federal Reserve Board

Anthony M. Santomero, The Wharton School


SESSION 4: MERGERS AND EFFICIENCY

Chair: Allen N. Berger
Federal Reserve Board, Wharton Financial Institutions Center

"The Dollars and Sense of Bank Consolidation"

Joseph P. Hughes, Rutgers University

William W. Lang, Office of the Comptroller of the Currency

Loretta J. Mester, Federal Reserve Bank of Philadelphia

Choon-Geol Moon, Hanyang University

View Abstract

"Efficiency, Scale Economies, and Consolidation in the U.S. Life Insurance Industry"

J. David Cummins, The Wharton School

Sharon L. Tennyson, The Wharton School

Mary A. Weiss, Temple University

Discussion: Gary Ferrier, University of Arkansas

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"The Impact of Mergers on Credit Union Service Provision"

Harold O. Fried, Union College

C. A. Knox Lovell, University of Georgia

Suthathip Yaisawarng, Union College

Discussion: Stavros Peristiani, Federal Reserve Bank of New York

View Abstract



SESSION 5: CONSOLIDATION, MANAGERIAL INCENTIVES, AND DEPOSITOR SERVICES

Chair: William C. Hunter

Federal Reserve Bank of Chicago

"The Role of Managerial Incentives in Bank Acquisitions"

Charles J. Hadlock, University of Illinois

Joel F. Houston, University of Florida

Michael Ryngaert, University of Florida

Discussion: Glenn Hubbard, Columbia University

View Abstract


"Consolidation and Bank Branching Patterns"

Robert Avery, Raphael Bostic, Paul Calem, and

Glenn Canner, Federal Reserve Board

Discussion: Gregory F. Udell
New York University



PANEL: EXPANSION OF BANK POWERS

Chair: Giorgio P. Szegö, University of Rome

Panelists: John Boyd, University of Minnesota

Edward J. Kane, Boston College

Anthony Saunders, New York University

Anjan V. Thakor, University of Michigan


Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045