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Home > Industry Analysis > Research & Analysis > FDIC Banking Review |
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FDIC Banking Review |
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Interstate Banking The Past, Present And Future by David Holland, Don Inscoe, Ross Waldrop and William Kuta The nation's press has been rife with announcements of merger and acquisition plans by large banking organizations since midyear 1995. This burst of announcements is part of a long-term fundamental restructuring of the industry that began in the early 1980s and is likely to continue for the foreseeable future. An integral component of this restructuring is the rise of interstate or multi-state banking, and particularly an increase in the number and economic importance of banking organizations with banking offices in more than one state. The restructuring of the banking industry may be decomposed into three interrelated trends. First, interstate banking has moved from being an oddity to being a prominent characteristic of the industry. At midyear 1995, two-thirds of the nation's banking assets were held by multi-state banking organizations. Second, consolidation, due mostly to mergers and acquisitions but also to bank failures and to a paucity of new entrants, has reduced the numbers of banking and thrift institutions substantially. For example, between year-end 1984 and March 31, 1996, the number of banking organizations bank holding companies and independent banks and thrifts declined 36 percent, from 14,887 to 9,481. Third, by some measures, the banking industry has become more concentrated. At year-end 1984, the largest 42 banking organizations held 25 percent of domestic deposits. At the end of the first quarter of 1996, the largest 13 banking organizations held 25 percent of domestic deposits. Moreover, five percent of the nation's banking organizations held 75 percent of domestic deposits. In 1994, Congress, with the enactment of the Riegle-Neal Interstate Banking and Branching Efficiency Act, added impetus to the ongoing trends. The major effect of this law derives from its authorization of interstate branching. Given the consolidation that has previously occurred in states where branching laws were already liberalized, banking organizations are expected to make extensive use of this authorization. This study documents the changes in the geographic scope, structure and concentration of the U.S. banking and thrift industries that have occurred over the past decade. Prospects for the continuation of these trends are analyzed from a variety of perspectives. Finally, the study attempts to identify the effect of increasing consolidation in banking on the Federal Deposit Insurance Corporation's supervisory activities. The Past and PresentFor most of the nation's history, state boundaries controlled and curtailed the growth of individual banking organizations. In most instances, a U.S. banking organization could not establish domestic deposit-taking offices outside of the state where its home office was located. Moreover, its ability to expand within its home state was often limited. One result of this situation was a decentralized banking industry with numerous participants and protected geographic markets. Over the brief period of little more than a decade, however, the U.S. banking industry has undergone what could be called a structural change of seismic proportions.1 State banking barriers have dropped quickly and significantly. At midyear 1984, 33 percent of the nation's banking assets were controlled by bank and thrift organizations with operations in two or more states. By midyear 1995, the proportion had grown to 67 percent, representing two-thirds of the nation's banking assets. A major consequence of the rise of interstate banking has been consolidation and concentration in the industry. The number of banking organizations has declined, and the proportions of banking assets and deposits controlled by larger banking organizations have risen. The growth of interstate banking and the accompanying industry consolidation has been propelled by marketplace forces that do not recognize political borders.2 In the decades following World War II, technological changes in communications and data processing eroded much of the common ground that banking markets and political boundaries may once have shared. Beginning in the late 1970s and early 1980s, a number of states acknowledged the changing economics of banking by allowing the creation and development of interstate bank holding companies companies that own banks in two or more states. The state laws varied considerably. Some of the states acted individually. Other states required reciprocity an out-of-state bank holding company could acquire an in-state bank only if the out-of-state holding company's home state granted similar acquisition privileges to holding companies in the target state. Still other states entered into reciprocal compacts with neighboring states. Some state laws, particularly those enacted pursuant to so-called "compacts," limited permissible out-of-state entrants to those from the neighboring geographic region. |
Table 1
State Elections Under the Interstate Branching Provisions
of the Riegle-Neal Act April 30, 1996
States Opting-In Prior to June 1, 1997 (24):
Alaska Idaho Mississippi North Carolina Utah
Arizona Indiana Nevada Oregon Vermont
California Maine New Jersey Pennsylvania Virginia
Connecticut Maryland New Mexico Rhode Island Washington
Delaware Michigan New York South Dakota
States Opting-In on June 1, 1997 Trigger Date (11):
Alabama Illinois Oklahoma
Florida Minnesota Tennessee
Georgia New Hampshire West Virginia
Hawaii North Dakota
State Opting Out:
Texas (sunsets September 2, 1999)
Source: The American Banker
|
Any uncertainties regarding state initiatives to remove
barriers to bank holding company expansion across state lines were eliminated in 1985. In
its decision in Northeast Bancorp v. Board of Governors of the Federal Reserve System, 472
U.S. 159, the U.S. Supreme Court upheld the ability of the states to reduce selectively,
under the Bank Holding Company Act, restrictions on entry by out-of-state holding
companies. In 1994, Congress in the Riegle-Neal Interstate Banking and Branching Efficiency Act ("the Riegle-Neal Act"), Pub. L. 103328, added a federal element to the states' initiatives on interstate banking. Under the Riegle-Neal Act, most remaining state barriers to bank holding company expansion were removed effective September 29, 1995. Holding company growth, however, is restrained by explicit, statutory deposit concentration limits: a ten percent nationwide limit and a 30 percent statewide limit.3 The Riegle-Neal Act also authorizes a previously unused interstate expansion alternative for banks branching.4 Beginning June 1, 1997, banks may merge across state lines, a process that would result in the offices of one bank becoming branches of the other. Interstate branching through merger is subject to the same concentration limits as are interstate acquisitions by bank holding companies. States may elect to either prohibit or authorize interstate branching through mergers prior to June 1, 1997. States may also elect to authorize de novo interstate branching, or entry from out of state by acquisition of one or more existing branches. The status of state elections as of April 30, 1996, is summarized in Table 1. Speculation on the impact of the Riegle-Neal Act requires an awareness of the interstate and consolidation trends that have been underway for at least the last ten years. The Riegle-Neal Act was not a precipitator of these trends. The Act, particularly its branching provisions, may shape and accelerate, the future course of these trends. To a large extent, however, the Riegle-Neal Act is merely an acknowledgment of what is being wrought by the marketplace under state laws. Consequently, the remainder of this section details the recent movements affecting the structure of the banking industry. A complete set of charts and data chronicling changes in the statistics of the banking industry is available from the authors. The Growth of Interstate Banking From midyear 1984 to midyear 1995, the number of multi-state banking organizations bank holding companies with banks in two or more states, and thrift institutions with offices in two or more states increased from 89 to 303 (Figure 1). When compared with the number of commercial banks and savings institutions in the nation (12,249 at midyear 1995), the number of multi-state organizations might seem small. The low number is misleading, however. Together, these multi-state organizations held 67 percent of the combined assets of the nation's commercial banks and thrifts at midyear 1995 up from 33 percent in 1984 and 59 percent of the nation's domestic deposits up from 23 percent in 1984 (Figure 1). |
| The states have embraced interstate banking with varying degrees of enthusiasm, but no state has avoided it entirely. In every state, some proportion of deposits is held in offices owned ultimately by out-of-state banking organizations. At year-end 1995, the average proportion of state deposits held by out-of-state organizations was 27.6 percent, the median was 28.8 percent, and the range stretched from 1.2 percent for North Carolina to 95.7 percent for Arizona (Figure 2). The five states, including the District of Columbia, with the largest percentages of deposits held by out-of-state organizations were: Arizona, 95.7 percent; Nevada, 70.6 percent; Wyoming, 68.2 percent; the District of Columbia, 64.7 percent; and Colorado, 61.0 percent. |
|
It should be noted that measuring a state's involvement
in the interstate banking movement by the percentage of in-state deposits controlled by
out-of-state organizations can be misleading. For example, only 1.2 percent of North
Carolina's deposits are in offices of out-of-state organizations. Yet because several bank
holding companies headquartered in North Carolina are among the leading multi-state
banking organizations and have substantial presences in other states, North Carolina could
certainly not be considered a bystander in the interstate banking movement. Banking Industry Consolidation A variety of statistics show a consolidating banking industry. The consolidation has
been due to a large number of exits from the industry mostly in the form of mergers and
acquisitions among healthy institutions but also in the form of bank failures coupled with
only a small number of entrants. From 1984 to the end of the first quarter of 1996, the
number of commercial banks declined 32 percent, from 14,483 to 9,841. The number of
savings institutions declined 41 percent, from 3,418 to 2,005. The number of bank holding
companies declined seven percent, from 5,707 to 5,305. The number of banking organizations
bank holding companies and independent banks and thrifts, perhaps the most meaningful
tabulation declined 36 percent, from 14,887 to 9,481(Figure 3). |
| Declining numbers of institutions do not necessarily equate to a declining industry. During the same period that the numbers of institutions were declining, 1984 to the end of the first quarter of 1996, in nominal terms5 the combined assets of commercial banks and savings institutions grew 46 percent, and domestic deposits grew 28 percent (Figure 4). |
Table 2
Percentages of Assets and Deposits in Independents and Holding Companies
12/84 12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 3/96
Percent of Total Assets
Holding Companies
Multibank 46.54 49.61 51.61 51.93 51.01 53.38 55.67 57.36 58.79 61.07 64.04 66.65 66.86
One-Bank 15.52 13.47 11.83 11.57 11.93 12.56 13.83 14.91 15.40 15.27 14.31 13.27 13.22
IndependentBanks/Thrifts 37.94 36.93 36.56 36.56 37.06 34.06 30.50 27.73 25.81 23.70 21.65 20.08 19.92
Percent of Total Domestic Deposits
Holding Companies
Multibank 38.06 41.42 44.68 45.83 46.23 48.05 50.90 51.96 53.39 55.01 57.16 59.45 59.71
One-Bank 17.37 15.71 14.11 13.57 13.92 14.45 15.59 16.82 17.45 17.76 17.62 16.97 16.94
IndependentBanks/Thrifts 44.57 42.87 41.21 40.59 39.85 37.50 33.51 31.22 29.15 27.23 25.21 23.58 23.35
| The decline in the numbers of banks and savings
institutions reflects a shift toward the holding company form of organization. As can be
seen in Table 2, the proportion of depository institution assets controlled by holding
companies both one-bank and multibank grew from 62 percent at year-end 1984 to 80 percent
as of March 31, 1996. Similarly, the proportion of domestic deposits controlled by holding
companies grew from 55 percent to 77 percent. The proportion of banks and thrifts in
holding company structures grew from 49 percent to 65 percent (Figure 5).
In contrast to the declining numbers of banking organizations, the number of banking offices remained fairly constant through 1990, as branch offices proliferated. The number of bank and thrift offices rose from 81,000 in 1984 to 87,000 in 1990. Subsequently, they have declined 6.7 percent, to 81,000 as of March 31, 1996 (Figure 6). |
There are three main factors responsible for the net
decline of 5,931 commercial banks and thrifts during the period 1985 to 1995 (Figure 7).
First, mergers and acquisitions that have not involved federal assistance have accounted
for most of the consolidation among commercial banks and savings institutions over the
past decade. From the end of 1985 through 1995, more than 6,000 commercial banks and
savings institutions have been absorbed through unassisted mergers. Second, over the same
period, more than 2,400 insolvent banks and thrifts have been closed or merged into
healthy institutions with federal assistance. Third, there have been 2,554 new commercial
banks and savings institutions chartered.Banking Industry ConcentrationA consolidating industry can be a concentrating industry. The number of banking organizations controlling 25 percent of domestic deposits declined from 42 at year-end 1984 to 13 at the end of the first quarter of 1996 (Figure 8). Similarly, the number controlling 50 percent of domestic deposits declined from 242 to 61, and the number controlling 75 percent of domestic deposits declined from 1,314 to 466. Another way to view the concentration of banking is to note that at the end of the first quarter of 1996, five percent of the nation's banking organizations 501 companies held 75 percent of domestic deposits. |
| With increased consolidation, will antitrust problems
become a major concern in banking?6 The
Riegle-Neal Act addresses this issue through state and national deposit concentration
limits that reduce the likelihood of antitrust problems developing. These limits are 30
percent of a state's deposits and ten percent of the nation's deposits. With certain
exceptions, an application by a banking organization for an interstate merger or
acquisition cannot be approved if the effect would be to exceed one of these limits. As of
the first quarter of 1996, the banking organization with the largest proportion of the
nation's domestic deposits was BankAmerica Corporation, with 3.62 percent, well below the
ten percent limit (Table 3). Banking organizations in six states exceeded the 30-percent
state limit, and 13 other banking organizations each held more than 20 percent of a
state's deposits (Table 4). Concentration limits apply only as a condition of approval for
interstate merger or branching transactions and not to intrastate transactions. Fall of Intrastate Barriers Other legal changes that have received less notice than the lifting of interstate barriers to bank expansion are the easing of geographic barriers within states. Over the last ten years, a number of states have removed or reduced restrictions within their borders on mergers and branching by banks (Figure 9). The resultant increase in freedom to expand within these states and to adopt preferred organizational structures has been a major contributor to the industry consolidation and concentration trends. The 16 states that adopted statewide branching since 1984 have accounted for 67.9 percent of the net reduction in commercial banks and savings institutions during that time. |
Table 3
Banking Organization With the Largest Percentages
of National Domestic Deposits
as of March 31, 1996
Banking Organization Percent
BankAmerica Corp. 3.62
NationsBank Corp. 2.94
Chase Manhattan Corp.* 2.93
First Union Corp. 2.74
Banc One Corp. 2.12
Citicorp 1.57
Fleet Financial Group 1.49
First Interstate Bancorp. 1.47
First Chicago NBD Corp. 1.38
PNC Bancorp. 1.37
* Chemical Banking Corporation and Chase Manhattan Corporation merged April 1, 1996.
Sources: Bank Summary of Deposits, Thrift Branch Office
Survey, FRB NIC Database, FDIC DRS RIS Database
| Recent Merger and Acquisition Activity A number of mergers and acquisitions among large banking organizations were announced in 1995. The total number of transactions announced during the year was 443.7 The amount of assets in the institutions to be acquired totaled $488 billion, far exceeding the amount of assets in acquired institutions in any previous year (Table 5). The next highest year was 1991 when the assets in acquired institutions totaled $297 billion. A variety of reasons may help to explain the unprecedented merger activity among very large banks. Through July 1996, 229 transactions have been announced with assets in institutions to be acquired totaling $164 billion. The largest transaction announced in 1996 involved the acquisition of First Interstate Bancorp by Wells Fargo and Company with seller's assets of $58 billion. Favorable Environment. The legal environment is now more permissive. As has been discussed, the Riegle-Neal Act allows bank holding companies more freedom to acquire banks across state lines than was possible under the existing state authorizations. At the same time, there are few potential acquisitions that would be precluded by the deposit concentration limitations specified in the new law. |
Table 4
States Where an Out-of-State Banking Organization Holds
More Than 20 Percent of the Domestic Deposits in a State,
as of June 30, 1995
State Banking Organization Percent
Rhode Island Royal Bank of Scotland 33.28
Arizona Banc One Corp. 31.05
Nevada First Interstate BancCorp. 25.44
Nevada BankAmerica Corp. 25.30
Idaho First Security Corp. 26.13
Arizona BankAmerica CorP. 27.47
Washington Bank America Corp. 21.95
South Dakota Citicorp 21.26
New Mexico Boatmen's Bancshares 21.96
Maine KeyCorp. 20.73
North Dakota First Bank System 20.89
Wyoming NorWest Corp. 27.71
States Where Banking Organization Holds More Than20
Percent of the Domestic Deposits in Its Own State,
as of June 30, 1995
State Banking Organization Percent
Alaska National BancCorp of Alaska 41.25
Idaho West One BancCorp. 34.09
Rhode Island Fleet Financial Group 33.74
Hawaii BancCorp Hawaii 30.52
Utah First Security Corp. 30.10
Oregon US BancCorp. 28.85
Hawaii First Hawaiian 27.98
District of Columbia Riggs National Corp. 26.55
Alaska First National Bank of Anchorage 22.23
California BankAmerica Corp. 20.90
Minnesota Norwest Corp. 20.69
Minnesota First Bank System 20.37
Utah Zions BancCorp. 20.22
Delaware MBNA Corp. 22.21
Sources: Bank Summary of Deposits, Thrift Branch Office
Survey, FRB NIC Database, FDIC DRS RIS Database
| The economic climate also favors mergers and acquisitions. Low interest rates and an improved economy have combined to push bank profits to record levels. This, in turn, has boosted stock prices, giving acquirers more purchasing power. High stock prices have facilitated "poolings" in which the acquirer trades its stock for the stock of the selling company. Of the 443 transactions announced in 1995, 177 were cash-only purchases, and 255 included stock trades.8 Also, equity capital ratios have reached their highest level in 40 years. Historically, high capital levels have provided more leveraging capability, allowing companies with excess capital to grow their assets through acquisitions. |
Table 5
Bank and Thrift Merger and Acquisition Announcements,
1989 through August 5, 1996
(Dollar Amounts in Billions)
Announced Completed
Mergers and Acquisitions Mergers and Acquisitions
Number Percent of Sellers' Percent of Value Percent of
of Announced Assets of Announced of Announced
Number Sellers' Deal Deals Deals Completed Deals Completed Deals
Year Announced Assets Value Completed Completed Deals Assets Deals
Value
1996 229 163.9 $23.7 35 15.28% $69.8 42.59% $14.0 59.07%
1995 443 488.0 63.2 373 84.20 482.6 98.89 62.4 98.81
1994 565 190.1 22.4 523 92.57 181.9 95.69 21.2 94.78
1993 477 175.4 23.5 447 93.71 169.0 96.37 22.5 95.69
1992 399 181.0 16.3 357 89.47 159.3 87.99 15.3 93.51
1991 305 296.7 22.1 274 89.84 291.3 98.21 21.7 98.41
1990 216 87.4 4.6 168 77.78 36.6 41.84 3.1 68.37
1989 201 115.2 11.5 173 86.07 103.3 89.62 10.5 91.58
*1995 Sellers' Assets and Deal Value do not include theannounced merger of First Bank, Inc. and
First Interstate Bancorp.
(seller assets of $55 billion and deal value of $10.7 billion). This deal was terminated. The 1996
Sellers' Assets include
the Wells Fargo acquisition of First Interstate, which was completed on April 1, 1996.
Note: Run date for 1996 and 1995 data is 8/5/96. Run date for 1989 - 1994 data is 7/30/96.
Source: SNL Securities
| Motivations for Sellers. Sellers have an
opportunity to lock in high stock prices. Bank stock prices have risen since 1991,
reflecting three consecutive years of record earnings by the commercial banking industry.
Various bank-stock indexes show that prices continued to increase during 1995. Many
acquisitions announced in 1995 were priced at a high premium over book value. The average
price-to-book value ratio for acquisitions has increased in each of the last four years.
According to data compiled by SNL Securities, the average price-to-book ratio for banks
and thrifts acquired during 1995 was 169 percent. Some banks may choose to sell to a friendly purchaser to avoid the possibility of a hostile takeover in the future. Many of the target companies have fully recovered from asset-quality problems and have clean balance sheets. Some companies may opt to sell instead of trying to expand in a slow-growth industry. Motivations for Buyers.Some of the recent transactions involve institutions that each predominantly operate in the same market. Operating efficiencies and product synergies are cited as motivations where branch structures or product lines overlap. Acquirers in within-market transactions may be seeking to protect today's high profits through cost-cutting and increased market share. A number of the announced transactions expand the acquirer's geographic and product markets. Inter-market transactions may be motivated by the desire to diversify sources of income and risks. Transactions may also be undertaken for defensive reasons: larger banking companies have fewer potential acquirers. |
Table 6
Number of FDIC-Insured Commercial Banks and Savings Institutions,
by Asset Size*
Yr./ Less than $100 Million to $1Billion to $5 Billion to $10 Billion
Qtr. $100Million $1Billion $5Billion $10 Billionor More
TOTAL
%of %of %of %of %of
No. Total No. Total No. Total No. Total No. Total
96:1 7,480 63.1 3,787 32.0 406 3.4 86 0.7 87 0.7 11,846
95:4 7,568 63.2 3,820 31.9 414 3.5 78 0.7 90 0.8 11,970
95:3 7,754 64.0 3,789 31.3 395 3.3 92 0.8 82 0.7 12,112
95:2 7,930 64.7 3,759 30.7 388 3.2 92 0.8 80 0.7 12,249
94:4 8,254 65.5 3,792 30.1 389 3.1 93 0.7 74 0.6 12,602
93:4 8,837 66.8 3,827 28.9 405 3.1 87 0.7 64 0.5 13,220
92:4 9,401 67.9 3,884 28.0 426 3.1 82 0.6 59 0.4 13,852
91:4 9,982 68.9 3,921 27.1 435 3.0 86 0.6 58 0.4 14,482
90:4 10,576 69.8 3,967 26.2 470 3.1 85 0.6 60 0.4 15,158
89:4 11,177 70.8 3,973 25.2 499 3.2 88 0.6 59 0.4 15,796
88:4 11,911 71.9 3,985 24.1 511 3.1 92 0.6 62 0.4 16,561
87:4 12,676 73.1 4,025 23.2 507 2.9 71 0.4 57 0.3 17,336
86:4 13,221 74.0 4,049 22.7 484 2.7 75 0.4 47 0.3 17,876
85:4 13,631 75.6 3,836 21.3 462 2.6 68 0.4 36 0.2 18,033
84:4 13,807 77.1 3,594 20.1 409 2.3 59 0.3 32 0.2 17,901
84:1 14,034 78.5 3,399 19.0 375 2.1 50 0.3 28 0.2 17,886
Assets of FDIC-Insured Commercial Banks and Savings Institutions,
by Asset Size*
Yr./ Less than $100 Million to $1Billion to $5 Billion to $10 Billion
Qtr. $100 Million $1 Billion $5 Billion $10 Billion orMore
TOTAL
%of %of %of %of %of
Assets Total Assets Total Assets Total Assets Total Assets Total
96:1 $341,862 6.4 $971,161 18.2 $869,835 34.2 $596,911 11.2 $2,544,972 47.8 $5,324,741
95:4 344,564 6.5 975,148 18.3 897,196 34.9 549,033 10.3 2,572,479 48.2 5,338,420
95:3 348,932 6.6 973,733 18.5 844,973 34.5 639,911 12.2 2,446,431 46.6 5,253,980
95:2 354,785 6.8 962,844 18.6 836,752 35.0 644,157 12.4 2,389,397 46.1 5,187,935
94:4 366,345 7.3 969,139 19.3 850,211 39.3 671,097 13.4 2,162,509 43.1 5,019,301
93:4 388,472 8.3 975,725 20.7 883,409 48.2 626,293 13.3 1,833,181 38.9 4,707,080
92:4 401,966 8.9 996,429 22.0 927,719 56.9 580,012 12.8 1,629,763 35.9 4,535,889
91:4 412,705 9.1 1,008,979 22.2 964,673 62.1 604,639 13.3 1,552,646 34.2 4,543,642
90:4 423,960 9.1 1,020,390 22.0 1,034,167 66.1 605,861 13.0 1,564,271 33.7 4,648,649
89:4 436,058 9.2 1,028,182 21.8 1,093,290 71.5 639,324 13.5 1,530,020 32.4 4,726,874
88:4 457,330 9.7 1,037,334 21.9 1,096,655 71.9 620,073 13.1 1,525,893 32.2 4,737,285
87:4 477,774 10.6 1,031,801 22.9 1,073,738 74.8 483,646 10.7 1,435,100 31.9 4,502,059
86:4 490,312 11.3 1,038,162 24.0 992,492 76.9 515,354 11.9 1,291,245 29.8 4,327,565
85:4 489,922 12.3 985,035 24.7 936,800 84.5 472,688 11.8 1,108,881 27.8 3,993,326
84:4 484,170 13.3 934,770 25.6 827,910 82.5 403,091 11.0 1,003,176 27.5 3,653,117
84:1 482,454 14.3 874,915 25.9 746,222 79.5 332,415 9.9 938,115 27.8 3,374,121
*Excludes institutions operating in RTC conservatorship.
Source: FDIC Division of Research and Statistics, RIS Database
| Consummation of the Transactions. To achieve cost
savings, acquirers may decide to convert newly acquired subsidiaries to branches, and to
close branches where there is overlap. The transactions require approval by stockholders
and regulators. Completion of an announced transaction reduces the number of independent
banking organizations but may not necessarily lead, immediately or ultimately, to a
reduction in the number of banks. Whether the number of commercial banks or savings
institutions declines after bank holding companies combine depends on whether the holding
company subsidiaries are also combined. While there has been considerable consolidation
activity following the completion of mergers and acquisitions in the past, state and
federal branching restrictions have limited the decline in the number of banks. The
Riegle-Neal Act, however, will allow bank holding companies considerable freedom to merge
banking subsidiaries across state lines and to convert acquired institutions into
branches. The full effect of the announced transactions on industry structure data will not appear for some time. As of August 5, 1996, 373 of the 443 announced transactions have been completed; 21 have been terminated. The largest announced deal of 1995 involved Chemical Banking Corp. acquiring Chase Manhattan Corp. with assets of approximately $118 billion, or nearly 24 percent of total assets covered by all 1995 announcements. This deal was completed on April 1, 1996. The FutureIt is fairly safe to predict that the interstate banking and industry consolidation trends have not run their course. These trends had been proceeding apace under previous law, and now have the additional spur of the Riegle-Neal Act. The real uncertainties regarding the future concern how much further the trends are likely to proceed and how their impacts may differ regionally and from state to state. In the following discussion, several approaches are taken to these issues. Before the scenarios are presented, however, a caveat is in order. The expansion and consolidation opportunities opened by the Riegle-Neal Act will not necessarily be pursued by all, or even a majority, of banking organizations. This might be particularly the case with interstate branching. For a variety of managerial and competitive reasons, some banking organizations may prefer to conduct interstate operations through holding company structures rather than through branching systems. That is, instead of converting all of its banking offices to branches of a single bank, a holding company might want to maintain one or more legally distinct bank subsidiaries in states or banking markets in which it operates. Some multibank holding companies currently operate more than one commercial bank subsidiary within a single state even when branching laws would permit those in-state banks to be merged. |
| A banking organization may perceive competitive
advantages in having community banks with local management, or in retaining the distinct
identities and names of acquired banks. A banking organization may prefer to operate
different businesses, such as credit cards or mortgage lending, out of separately
chartered institutions. Some banking organizations may not agree that potential cost
savings from converting banks into branches outweigh the advantages of operating multiple
banks. Some banking organizations may choose to explore the possibilities of the
"affiliate as agent" provision in Section 101 of the Riegle-Neal Act. This
provision permits affiliated banks to receive deposits, renew time deposits, and collect
loan payments for one another. The point is that the Riegle-Neal Act only increases the structural alternatives available to banking organizations. Neither it nor the marketplace mandates that all banking organizations select an identical structure. A Minimalist Approach At midyear 1995, there were 303 banking organizations with interstate banking operations, representing 1,605 commercial banks and savings institutions with combined assets of $3.58 trillion. If each of these multi-state companies were to consolidate into a single lead bank or thrift and convert all other subsidiaries to branch offices, and no other interstate or intrastate transactions were to occur, the net reduction would be 1,302 institutions. The number of banks and thrifts would decline to 10,947, a reduction of 11 percent from the midyear 1995 total of 12,249 institutions (Table 6). For the FDIC, the net reduction in supervised institutions would be 322 out of 6,635. A recent study finds that, due to the very favorable industry conditions since 1990, many banking organizations appear to have the strong performance and capitalization necessary to take advantage of future acquisition opportunities.9 Although noting that it is difficult to know the extent to which future merger activity will be stimulated by the Riegle-Neal Act, the study finds that mergers and consolidations have risen in the past when state restrictions upon intrastate branching were relaxed. O'Keefe states that it is difficult, if not impossible, to predict which banks will combine operations through mergers, that is, to predict pairs of targets and acquirers. However, analyses of the financial characteristics of past target banks and acquirers show that one may be able to predict which banks are likely merger targets, and acquirers may then be used to infer the level of future merger activity. An Extrapolation Approach In a paper published in April 1995, Daniel Nolle, an economist with the Office of the Comptroller of the Currency, used an extrapolation approach to arrive at the total number of U.S. commercial banks that might exist in the year 2001.10 Assuming that recent patterns of structural changes closings, de novo charters, thrift conversions, intra-company mergers, and inter-company mergers persist, Nolle arrives at a figure of 8,798 commercial banks at year-end 2000, a 19-percent reduction from 10,870 commercial banks at the end of 1993. Then, to allow for the impact of interstate branching, he increased the assumed rates of intra- and inter-company mergers, resulting in 7,787 commercial banks at the end of the year 2000, a 28-percent reduction over seven years. By way of comparison, if one simply takes the actual reduction in the number of commercial banks in 1993 504 banks and multiplies that number by seven (for the years 1994 through 2000), the result is a net reduction of 3,528 banks, or 32 percent. |
| The Future of the Community Bank A noteworthy aspect of the consolidation process over the past decade has been a decline in the number of small institutions. For example, there has been a 45-percent reduction in the number of banks and thrifts with less than $100 million in assets since 1984 (Table 5). The decline in the number of these small institutions accounts for the entire decrease in the number of insured commercial banks and savings institutions over that period. Given that the imminent arrival of interstate branching is expected to add momentum to the trends of industry consolidation, it may reasonably be asked whether the small community bank has a viable place in the future structure of the industry. This question is of interest to the FDIC in its supervisory role; the FDIC is the primary federal regulator for two out of every three insured institutions with less than $100 million in assets. Four factors have contributed to the decline in the number of the smallest institutions. The most significant has been the number absorbed by unassisted mergers. Approximately 4,500 small banks and thrifts have been merged into larger institutions since 1984. A second factor has been growth. Since 1984, about 2,100 institutions have increased their assets above the $100-million asset-size threshold. Failures are the third factor. From 1985 through 1995, there were 1,599 failures of commercial banks and savings institutions with assets of less than $100 million. Finally, the number of new charters has declined, and new charters are issued most often for smaller institutions. Although 2,424 new charters were issued from 1985 through 1995, the number has trended steadily downward. In 1985, there were 598 new commercial banks and thrifts chartered. By 1994, the number of new charters had declined to 75. As more institutions are removed from the ranks of the smallest, fewer new institutions are replacing them. Over half (61.4 percent) of the net reduction in the smallest institutions since 1984 has occurred in the 16 states that had restrictive branching laws but have since removed those restrictions. Branching restrictions tend to increase the number of new charters, which serve as substitutes for de novo branches. For example, four out of every five new commercial bank charters in 1985 occurred in one of the 31 states that restricted branching at that time; almost one-third were in a single unit banking state, Texas. The lifting of these restrictions has spurred the subsequent pace of merger and consolidation activity as more multibank holding companies are able to convert subsidiaries into branches. If the decline in the number of smaller institutions is all that is considered, the future prospects of this segment of the banking industry might seem unpromising. The picture painted by the declining number, however, is incomplete. Smaller banks still are the most numerous category of institution. As of March 31, 1996, there were nearly 7,500 commercial banks and savings institutions with less than $100 million in assets, accounting for two out of every three FDIC-insured depository institutions. More than 95 percent of all insured institutions have less than $1 billion in assets. Although institutions with less than $100 million in assets together represent only 6.4 percent of industry assets, they held 22 percent of all loans to small businesses. 11 They operate in over 4,000 cities and towns in which there are no offices of larger banks, providing essential financial services to consumers and businesses. |
Table 7
Number of FDIC-Insured Commercial Banks and Savings
Institutions according to Primary Regulator*
FDIC OCC FRB OTS** TOTAL
Yr./ %of %of %of %of
Qtr. No. Total No. Total No. Total No. Total
96:1 6,561 55.4 2,822 23.8 1,047 8.8 1,416 12.0 11,846
95:4 6,637 55.4 2,855 23.9 1,042 8.7 1,436 12.0 11,970
95:3 6,726 55.5 2,892 23.9 1,034 8.5 1,460 12.1 12,112
95:2 6,832 55.8 2,946 24.1 994 8.1 1,477 12.1 12,249
94:4 7,010 55.6 3,075 24.4 975 7.7 1,542 12.2 12,602
93:4 7,278 55.1 3,304 25.0 969 7.3 1,669 12.6 13,220
92:4 7,432 53.7 3,593 25.9 955 6.9 1,872 14.0 13,852
91:4 7,606 52.5 3,790 26.2 974 6.7 2,112 14.6 14,482
90:4 7,811 51.5 3,979 26.3 1,009 6.7 2,359 15.6 15,158
89:4 7,969 50.4 4,175 26.4 1,034 6.5 2,618 16.6 15,796
88:4 8,182 49.4 4,353 26.3 1,059 6.4 2,967 17.9 16,561
87:4 8,462 48.8 4,623 26.7 1,092 6.3 3,159 18.2 17,336
86:4 8,679 48.6 4,871 27.2 1,094 6.1 3,232 18.1 17,876
85:4 8,742 48.5 4,959 27.5 1,070 5.9 3,262 18.1 18,033
84:4 8,793 49.1 4,902 27.4 1,056 5.9 3,150 17.6 17,901
84:1 8,886 49.7 4,790 26.8 1,059 5.9 3,151 17.6 17,886
Assets of FDIC-Insured Commercial Banks and Savings institutions
(Dollars in Millions)
FDIC OCC FRB OTS**
Yr./ %of %of %of %of
Qtr. Assets Total Assets Total Assets Total Assets Total TOTAL
96:1 $1,174,513 22.1 $2,398,414 45.0 $988,962 18.6 $762,851 14.3 $5,324,740
95:4 1,182,984 22.2 2,400,831 45.0 983,630 18.4 770,973 14.4 5,338,418
95:3 1,181,091 22.5 2,319,184 44.1 978,635 18.6 775,069 14.8 5,253,979
95:2 1,166,646 22.5 2,299,720 44.3 943,912 18.2 777,657 15.0 5,187,935
94:4 1,144,169 22.8 2,255,941 44.9 845,067 16.8 774,124 15.4 5,019,301
93:4 1,104,868 23.5 2,100,566 44.6 726,871 15.4 774,775 16.5 4,707,080
92:4 1,080,667 23.8 2,004,940 44.2 638,233 14.1 812,049 17.9 4,535,889
91:4 1,070,232 23.6 1,985,322 43.7 592,893 13.0 895,195 19.7 4,543,642
90:4 1,073,242 23.1 1,987,777 42.8 557,788 12.0 1,029,842 22.2 4,648,649
89:4 1,020,819 21.6 1,978,226 41.9 540,830 11.4 1,186,999 25.1 4,726,874
88:4 984,188 20.8 1,850,460 39.1 534,256 11.3 1,368,381 28.9 4,737,285
87:4 914,052 20.3 1,773,470 39.4 529,563 11.8 1,284,974 28.5 4,502,059
86:4 848,164 19.6 1,743,902 40.3 533,196 12.3 1,202,303 27.8 4,327,565
85:4 759,757 19.0 1,632,586 40.9 495,721 12.4 1,105,262 27.7 3,993,326
84:4 690,488 18.9 1,498,179 41.0 455,728 12.5 1,008,722 27.6 3,653,117
84:1 654,124 19.4 1,399,298 41.5 438,743 13.0 881,956 26.1 3,374,121
* Excludes institutions operating in RTC conservatorship.
** FHLBB prior to the enactment of FIRREA on August 9,1989.
Source: FDIC Division of Research and Statistics, RIS Database
| Smaller institutions have demonstrated the ability to
thrive in both large and small markets. Indeed, smaller institutions have flourished in
states such as California, New York and Virginia where statewide branching has been
allowed for many years. The recent performance of small banks and thrifts does not offer
cause to doubt their future viability. In four of the last six years, and in four of the
last six quarters through the first quarter of 1996, institutions with less than $100
million in assets have been more profitable than the industry average as measured by
return on assets (ROA). In 1994, 1995, and through the first quarter of 1996, more than 95
percent of these institutions were profitable. More than half reported ROAs above 1.00
percent, and more than three-quarters had ROAs above 0.75 percent. In summary, although the trend toward consolidation in banking appears likely to continue, data on bank performance suggest that the smaller banking organization, focused on service to a particular local community, taking advantage of competitive strengths resulting from that focus, can continue to prosper. Impact on Supervision:Background In terms of numbers of institutions supervised, the consolidation process has affected all four federal regulators. As shown in Table 7, from the end of 1984 through the first quarter of 1996, the number of banks and thrifts supervised by the FDIC declined by 25 percent, from 8,793 to 6,561; the number of national banks supervised by the Office of the Comptroller of the Currency declined by 42 percent, from 4,902 to 2,822; the number of banks supervised by the Federal Reserve declined by one percent, from 1,056 to 1,047; and the number of savings institutions supervised by the Federal Home Loan Bank Board (FHLBB) and its successor, the Office of Thrift Supervision (OTS), declined by 55 percent, from 3,150 to 1,416.
As shown in Figures 11 through 14, different factors explain the decline in the number of institutions supervised by each regulator. Since the beginning of 1989 through 1995, the number of institutions supervised by the FDIC has declined by 1,334 (Figure 11). Nearly 1,900 FDIC-supervised institutions have been absorbed in unassisted mergers and consolidations (consolidations occur when multibank holding companies merge together their subsidiary banks). An additional 317 FDIC-supervised institutions failed and were closed. On the increase side, 434 new FDIC-supervised banks were chartered. A number of these new charters were issued in acquisitions of failing banks. During the same period, charter conversions resulted in 598 institutions switching to FDIC supervision from one of the other three federal regulators, and 374 FDIC-supervised institutions switching to another regulator, for a net gain to the FDIC of 224 institutions. A large share of the institutions switching to FDIC supervision consisted of "Sasser" charter conversions by OTS-supervised savings associations.12 Since the passage of FIRREA in 1989, SAIF-member savings associations regulated by the OTS have been able to convert their charters and become state savings banks regulated by the FDIC where state law permits, or they can become commercial banks regulated by one of the three federal bank regulators. As of March 31, 1996, the FDIC supervised 233 SAIF-member "Sasser" savings banks and 57 SAIF-member "Sasser" commercial banks that previously had been savings associations supervised by the OTS. The OCC has experienced a similar decline 1,317 banks since 1989 in the number of institutions it supervises (Figure 13). If this reduction is expressed as a percentage, it is more than twice the decrease experienced by the FDIC (-31.5 percent, as compared with -16.7 percent), because the OCC supervises a smaller number of banks. As with the FDIC, the reduction in the number of institutions supervised by the OCC since 1989 has been due primarily to unassisted mergers and consolidations. The addition of 253 new charters and the conversions of 171 existing charters to OCC supervision were offset by the loss of 309 national banks to failures and 280 national banks converting to state charters. In contrast, there has been a slight increase in the number of banks supervised by the Federal Reserve. At year-end 1995, the Federal Reserve supervised 1,042 state-chartered member banks, eight more than at the end of 1989. Increases from new charters (70) and conversions from other charters (329) have been matched by conversions of state member banks to other charters (82) and by absorptions of Federal Reserve-supervised banks in mergers and consolidations (269). There have been 50 failures of state member banks since 1989, accounting for the net decline in banks under Federal Reserve supervision. The most dramatic reduction in institutions under supervision has occurred at the OTS (Figure 14). Although the net decline of 1,182 OTS-supervised savings institutions is smaller than the declines for the FDIC or the OCC, it represents a 45.2-percent decrease. The substantial reduction in the number of OTS-supervised savings institutions was initially due to failures but more recently has resulted from mergers and "Sasser" charter conversions. Unlike the case with the other three federal supervisory agencies, the impact of these losses has not been cushioned by the addition of new charters or conversions from other charters. From the beginning of 1989 through the end of 1995, 761 OTS/FHLBB-supervised institutions failed.13 Another 502 institutions were absorbed by unassisted mergers and consolidations, while 370 savings associations converted to state savings banks supervised by the FDIC or commercial banks supervised by one of the three federal bank regulators. Only 89 new thrift charters were issued during this period.
It is clear from these trends that the factors determining the number of institutions unassisted mergers and acquisitions, failures, new charters, and charter conversions have affected each of the agencies differently. As a result, each agency's share of institutions supervised has shifted. The FDIC's share has shown the greatest increase, rising from 49.1 percent of insured banks and thrifts in 1984 to 57.1 percent as of March 31, 1996 (Table 7). The OTS/FHLBB share experienced the greatest decrease, declining from 17.6 percent in 1984 to 12.0 percent at year-end 1995. During the same period, the OCC's share declined slightly, from 27.4 to 23.8 percent, and the Federal Reserve's share rose modestly, from 5.9 to 8.8 percent. The shifts in shares of the number of institutions regulated can be largely explained by changes in the thrift industry. If only commercial banks are considered, the shares of the three bank regulatory agencies show little movement (Table 8). Between year-end 1984 and the end of the first quarter of 1996, the FDIC's share of the number of commercial banks supervised increased from 58.9 percent to 60.1 percent, and its share of industry assets under supervision shrank slightly, from 22.1 percent to 21.4 percent. The OCC's shares of institutions and assets supervised both showed small declines, while the Federal Reserve's shares both rose slightly.
The portion of the thrift industry supervised by the OTS/FHLBB has decreased over the last ten years, while that of the FDIC has increased (Table 9). The decline in the OTS/FHLBB share is largely a result of financial difficulties experienced by thrifts in the 1980s. Much of the shift has occurred since the creation of the RTC in 1989, when large numbers of insolvent savings-and-loan associations began to be resolved. From August 1989 through July 1995, 745 insolvent OTS-supervised thrifts were resolved by the RTC. In addition, large numbers of OTS institutions have either been acquired without government assistance or have converted their charters and are now supervised by one of the other federal regulators. From the end of 1984 to the end of the first quarter of 1996, the OTS/FHLBB's share of thrifts supervised declined from 92.2 percent to 70.6 percent, while the FDIC's share rose from 7.8 percent to 29.4 percent. During this period, the OTS/FHLBB's share of thrift assets supervised declined from 88.2 percent to 75.1 percent, while the FDIC's share rose from 11.8 percent to 24.9 percent. The shrinkage in the number of commercial banks during the past ten years has been accompanied by an increase in industry size as measured by total assets. All three banking regulators have experienced significant increases in assets under supervision since the end of 1984, even as the OTS/FHLBB experienced a decline (Table 7). Total assets under Federal Reserve supervision grew by 117 percent, while assets under FDIC supervision increased by 70 percent, and those under OCC supervision grew by 60 percent. Assets under OTS/FHLBB supervision declined by 24 percent. The three banking agencies all had minor increases in the share of assets supervised during this period. The FDIC's share rose from 18.9 percent to 22.1 percent; the OCC's share rose from 41.0 percent to 45.0 percent; and the Federal Reserve's share rose from 12.5 percent to 18.6 percent. The increases were at the expense of the OTS/FHLBB, which saw its share decline from 27.6 percent to 14.3 percent. |
Table 8
Number of FDIC-Insured Commercial Banks
According to Primary Regulator
FDIC OCC FRB
Yr./ %of %of %of
Qtr. No. Total No. Total No. Total TOTAL
96:1 5,972 60.7 2,822 28.7 1,047 10.6 9,841
95:4 6,044 60.8 2,855 28.7 1,042 10.5 9,941
95:3 6,126 60.9 2,892 28.8 1,034 10.3 10,052
95:2 6,228 61.3 2,946 29.0 994 9.8 10,168
94:4 6,400 61.2 3,075 29.4 975 9.3 10,450
93:4 6,685 61.0 3,304 30.2 969 8.8 10,958
92:4 6,914 60.3 3,593 31.3 955 8.3 11,462
91:4 7,157 60.0 3,790 31.8 974 8.2 11,921
90:4 7,355 59.6 3,979 32.2 1,009 8.2 12,343
89:4 7,500 59.0 4,175 32.9 1,034 8.1 12,709
88:4 7,711 58.8 4,353 33.2 1,059 8.1 13,123
87:4 7,999 58.3 4,623 33.7 1,092 8.0 13,714
86:4 8,234 58.0 4,871 34.3 1,094 7.7 14,199
85:4 8,378 58.2 4,959 34.4 1,070 7.4 14,407
84:4 8,525 58.9 4,902 33.8 1,056 7.3 14,483
84:1 8,610 59.5 4,790 33.1 1,059 7.3 14,459
Assets of FDIC-Insured Commercial Banks
(Dollars in Millions)
FDIC OCC FRB
Yr./ %of %of %of
Qtr. Assets Total Assets Total Assets Total TOTAL
96:1 $920,960 21.4 $2,398,414 55.7 $988,962 23.0 $4,308,336
95:4 928,217 21.5 2,400,831 55.7 983,630 22.8 4,312,678
95:3 931,486 22.0 2,319,184 54.8 978,635 23.1 4,229,305
95:2 927,074 22.2 2,299,720 55.1 943,912 22.6 4,170,706
94:4 909,648 22.7 2,255,941 56.2 845,067 21.1 4,010,656
93:4 878,754 23.7 2,100,566 56.7 726,871 19.6 3,706,191
92:4 862,501 24.6 2,004,940 57.2 638,233 18.2 3,505,674
91:4 852,425 24.8 1,985,322 57.9 592,893 17.3 3,430,640
90:4 843,906 24.9 1,987,777 58.6 557,788 16.5 3,389,471
89:4 780,306 23.7 1,978,226 60.0 540,830 16.4 3,299,362
88:4 746,080 23.8 1,850,460 59.1 534,256 17.1 3,130,796
87:4 696,915 23.2 1,773,470 59.1 529,563 17.7 2,999,948
86:4 663,600 22.6 1,743,902 59.3 533,196 18.1 2,940,698
85:4 602,364 22.1 1,632,586 59.8 495,721 18.2 2,730,671
84:4 554,964 22.1 1,498,179 59.7 455,728 18.2 2,508,871
84:1 518,763 22.0 1,399,298 59.4 438,743 18.6 2,356,804
Source: FDIC Division of Research and Statistics, RIS Database
| Three points summarize the trends in regulatory responsibilities over the last decade. First, the decline in the number of supervised institutions began with a wave of failures in the 1980s extending into the early 1990s. At the same time there was an increase in the pace of unassisted mergers that is still continuing and a sustained decline in new chartering activity. Second, mergers have increased the average sizes of supervised institutions14 and have led to a greater concentration of industry assets. Supervisory responsibilities, as measured by assets under supervision, have increased at the three banking agencies. Third, except for the declines experienced by the OTS/ FHLBB, there has been little change so far among the three bank regulatory agencies in shares of institutions and assets supervised. This stability in bank regulators' shares will probably not continue in light of the recent trend in large company mergers. Major acquisitions announced during 1995 involve changes in ownership of 10.2 percent of all commercial bank and thrift assets. |
Table 9
Number of FDIC-Insured Savings Institutions
According to Primary Regulator*
FDIC OTS**
Yr./ %of %of
Qtr. No. Total No. Total TOTAL
96:1 589 29.4 1416 70.6 2,005
95:4 593 29.2 1436 70.8 2,029
95:3 600 29.1 1460 70.9 2,060
95:2 604 29.0 1477 71.0 2,081
94:4 610 28.3 1,542 71.7 2,152
93:4 593 26.2 1,669 73.8 2,262
92:4 518 21.7 1,872 78.3 2,390
91:4 449 17.5 2,112 82.5 2,561
90:4 456 16.2 2,359 83.8 2,815
89:4 469 15.2 2,618 84.8 3,087
88:4 471 13.7 2,967 86.3 3,438
87:4 463 12.8 3,159 87.2 3,622
86:4 445 12.1 3,232 87.9 3,677
85:4 364 10.0 3,262 90.0 3,626
84:4 268 7.8 3,150 92.2 3,418
84:1 276 8.1 3,151 91.9 3,427
Assets of FDIC-Insured Savings Institutions
(Dollars in Millions)
FDIC OTS**
Yr./ %of %of
Qtr. Assets Total Assets Total TOTAL
96:1 253,553 24.9 762,851 75.1 1,016,404
95:4 254,767 24.8 770,973 75.2 1,025,740
95:3 249,604 24.4 775,069 75.6 1,024,673
95:2 239,572 23.6 777,657 76.4 1,017,229
94:4 234,521 23.3 774,124 76.7 1,008,645
93:4 226,114 22.6 774,775 77.4 1,000,889
92:4 218,166 21.2 812,049 78.8 1,030,215
91:4 217,807 19.6 895,195 80.4 1,113,002
90:4 229,336 18.2 1,029,842 81.8 1,259,178
89:4 240,513 16.8 1,186,999 83.2 1,427,512
88:4 238,108 14.8 1,368,381 85.2 1,606,489
87:4 217,136 14.5 1,284,974 85.5 1,502,110
86:4 184,563 13.3 1,202,303 86.7 1,386,866
85:4 157,392 12.5 1,105,262 87.5 1,262,654
84:4 135,524 11.8 1,008,722 88.2 1,144,246
84:1 135,361 13.3 881,956 86.7 1,017,317
* Excludes institutions operating in RTC conservatorship.
** FHLBB prior to the enactment of FIRREA on August 9, 1989.
Source: FDIC Division of Research and Statistics, RIS Database
| Table 6 illustrates how the drop in the number of
smaller banks has coincided with an increase in the number of very large banks and the
assets they hold. Between early 1984 and March 31, 1996, the number of banks and savings
institutions with less than $1 billion in assets declined by almost one-third, from 17,433
to 11,267. During that period, their share of industry assets declined from 40.2 percent
to 24.6 percent. In contrast, the number of institutions with more than $1 billion in
assets increased from 453 to 579. The most significant increase in terms of industry asset
share has taken place at the largest institutions. The number of institutions with over
$10 billion in assets increased almost threefold, from 28 in 1984 to 87 as of March 31,
1996. The proportion of bank and thrift assets held by this relatively small number of
large institutions increased from 28 percent to 48 percent. Implications Consolidation within multibank organizations may simplify some aspects of supervision by decreasing the number of federal regulators that have jurisdiction over a banking organization. For example, many bank holding companies have multiple bank subsidiaries. The regulator of each subsidiary is determined by the subsidiary's charter and, if the charter is from a state, the subsidiary's Federal Reserve membership status. Thus, each of the four federal bank and thrift regulators may supervise a portion of a multibank holding company. When banks or thrifts merge, the resultant institution has only one primary federal regulator. In the case of a holding company with national banks the resultant institution would have two federal regulators. Although interstate branching, to the extent it encourages such consolidation, may simplify federal jurisdictions, it will complicate the task of state bank supervisors. Branching across state lines will result in a number of banking organizations that must answer to more than one state authority. Finally, attention to communications and information-sharing both within and between federal and state regulators will assume increasing importance as a nationwide banking system evolves and more institutions find themselves subject to multiple regulatory jurisdictions. Organizations as disparate as the Basle Committee on Bank Supervision and the Conference of State Bank Supervisors have recognized the need for regulatory agencies to communicate adequately with each other. |
Table 10
Shifts of Federally Insured Depository Institutions Among Primary
Federal Regulators If All Institutions Were Consolidated into
Largest Institution Under the Top Holder (Regulatory High Holder)
(as of March 31, 1996; excludes IBAs)
Assets % ofTotal
Number (Millions) Number Assets
Total 11,846 $5,324,740
Institutions regulated by FRB on 3/31/96 1,047 988,962 8.8% 18.6%
Institutions that would be regulated by FRB 1,083 1,135,190 9.1 21.3
Current regulator
FDIC 88 60,686
FRB 895 860,960
OCC 88 207,948
OTS 12 5,595
Institutions regulated by FDIC on 3/31/96 6,561 1,174,513 55.4 22.1
Institutions that would be regulated by FDIC: 6,177 984,126 52.1 18.5
Current regulator
FDIC 5,987 954,937
FRB 46 5,545
OCC 116 17,608
OTS 28 6,036
Institutions regulated by OCC on 3/31/96 2,822 2,398,414 23.8 45.0
Institutions that would be regulated byOCC: 3,219 2,501,691 27.2 47.0
Current regulator
FDIC 474 156,407
FRB 981 20,984
OCC 2,611 2,172,007
OTS 36 52,293
Institutions regulated by OTS on3/31/96: 1,416 762,851 12.0 14.3
Institutions that would be regulated byOTS: 1,367 703,733 11.5 13.2
Current regulator
FDIC 12 2,483
FRB 8 1,473
OCC 7 849
OTS 1,340 698,927
Institutions shifiting to a new regulator: 1,013 637,909 8.6 12.0
* Excludes insured branches of foreign banks.
Source: FDIC Division of Research and Statistics
| The final chart, Table 10, shows how the balance among the regulators would shift if all bank holding companies were to merge all of their bank and thrift subsidiaries into the "lead" bank.15 It assumes that the largest subsidiary would retain its current charter and federal regulator. It is apparent that the consolidation process would bring many institutions under the supervision of new regulators. For example, 574 banks and thrifts that are currently regulated by the FDIC would be consolidated into "lead" banks supervised either by the Federal Reserve (88 banks), the OCC (474), or the OTS (12). At the same time, 190 banks that are currently regulated by the Federal Reserve (46), the OCC (116) or the OTS (28) would be consolidated into "lead" banks supervised by the FDIC. |
| Last Updated 7/12/1999 | Questions, Suggestions & Requests |
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