Scherer, F.M. "The Banking Industry." HKS Faculty Research Working Paper Series RWP14-042, September 2014.

Abstract

This paper, written as a chapter for the forthcoming 13th edition of the case study volume, The Structure of American Industry, examines the structure, conduct, and economic performance of the U.S. banking industry, focusing mainly on commercial and investment banking. It finds a strongly rising trend in the concentration of banking activity among the top ten banks despite weak evidence of scale economies. An intense merger history is a main reason. During the first decade of the 21st century, the conduct of U.S. banking firms left much to be desired. It precipitated the "great recession" of 2008, intensified consumption reductions, sustained diverse inter-bank collusive activity. The sharp increase in the financial industries' share of total U.S. corporation profits between the 1980s and the 2000s is analyzed, as is the extraordinary growth of financial employee compensation to roughly three times levels for college graduates employed in other sectors. Changes in banking regulation and governmental merger controls are examined.