“Primary years to come. Larger banks are outpacing

“Primary bank customers are
migrating from small to large institutions at a growing rate, signaling
accelerated industry consolidation in the years to come. Larger banks are
outpacing their smaller competitors with lower costs, greater productivity, and
one powerful advantage: their ability to invest in and deploy digital and
mobile capabilities. In today’s banking environment, scale does matter “(AT
Kearney). “Citigroup (NYSE:C), Wells Fargo (NYSE: WFC), JPMorgan Chase
(NYSE:JPM), and Bank of America were actually 35 separate companies in 1990.
Even before the activity that took place as a result of the financial crisis,
the banking industry has a long history of big M deals”. The 2008/ 2009
financial crisis was a good period for mergers and acquisitions as smaller
banks didn’t have the resources to survive so bigger banks bought them out.


There are several favourable reasons
for banking industry consolidation, mostly business related, like improving
revenue, cutting cost through efficiency in operations, expand business lines
and locations. “consolidation has been driven by exogenous changes in the
banking industry’s economic environment, and these changes have often worked in
concert to encourage consolidation. Foremost among them have been globalization
of the marketplace, technological change, deregulation, and major macroeconomic
events (such as the thrift and banking crises of the 1980s and the early 1990s,
and the economic and stock market boom of the late 1990s)” (Jones and
Critchfield, 2005). However, there are consequences of banking consolidation
and one of them being a reduced amount of financial services and institutions
to smaller customers.  There has been a
number of research as to the effects of consolidation especially in the US
banking industry; however, researchers have faced difficulty in measuring the
gains or efficiency of consolidation. Pilloff and Santomero (1998) and
Calomiris and Karceski (1998), in particular, have enumerated several
methodological pitfalls that make it hard to assess the effects of
consolidation accurately. Among the pitfalls are these: (1) because of
increased competition, efficiency gains from mergers might not be reflected in
net earnings; (2) lags in performance improvement may be extensive (three to
five years), especially for mergers motivated by strategic goals such as
diversification rather than by a desire to cut costs; (3) constructing a
believable benchmark (for purposes of comparison) in the midst of a merger wave
may be difficult; and (4) controlling for multiple causal and motivational
factors over time and across mergers may be difficult. (FDIC Banking review,

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