Publications: A Markov View of Bank Consolidation: 1960-2000
by Douglas D. Robertson
Abstract
This paper presents an empirical investigation of the consolidation process among
banking organizations over the past 40 years. As merger announcements in the news make clear,
consolidation is a continuing saga. While consolidation has been the dominant characteristic of
the banking industry for decades, tests show that consolidation has not been a stable process.
These tests indicate that nine different episodes, ranging in duration from one year to 11 years,
describe the bank consolidation process since 1960. Closer examination of the episodes reveals
that consolidation slowed after the early 1980s for banks with less than $2.7 billion in assets, but
accelerated and was operating at its fastest pace between 1994 and 2000 for banks with more
than $2.7 billion in assets. Furthermore, in the 1994-2000 episode, the largest banks, those with
assets greater than $24.3 billion were most likely to exit the industry while the smallest banks,
those with assets of less than $100 million, were least likely to exit the industry. Transition
probabilities from the most recent consolidation episode provide a plausible estimate of what the
banking industry's structure will look like in the future.
Disclaimer
As with all OCC Working Papers, the opinions expressed in this paper are those of the author alone, and
do not necessarily reflect the views of the Office of the Comptroller of the Currency or the Department of the Treasury.
Any whole or partial reproduction of material in this paper should include the following citation:
Douglas D. Robertson " A Markov View of Bank Consolidation: 1960-2000, " Office of the Comptroller of the Currency, E&PA Working Paper
2001-4, September 2001.
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