Question

Discuss the impact of the bank mergers on the structure of American banking. Why do banks merge?

Answer 1

Most studies done on mergers and their effects on the structure of the banking industry have tended to focus on aggregate effects, as opposed to looking at individual banking markets. This is due partially to problems in defining the relevant banking market as well as the ease of calculation of the broader measures of market structure.There had been a tendency towards deconsolidation in commercial banking for years.However these merges played a role in consolidating of the banking industry. However , this tendency towards consolidation was more offset by the vigorous internal growth of medium sized banks, leading to deconsolidation overall.Merger activity had a significant and a postive effect on the change in state concentration. The financial strength of the larger banking organisations, perhaps combined with their experience with expansion, permits them to respond comparatively rapidly to growth opprtunities.

Banks merge because of many reasons such as:-

1.Leading to higher scale of operations.

2.Improvemnet in efficiency and lower costs.

3 Higher market share leads to higer profits and results.

4.Risk Management is benefitted.

5.Helps in financial inclusion for a broader picture.

6.Helps in minimising the scope of inefficiency.

7.It will reduce competition and ficus more on the customers.