This paper analyzes the massive merger wave that has led to substantially increased concentration of banking activity in the United States. One consequence is the rise of banks “too big to fail”. The structural changes have also been associated with a striking change in financial institutions’ share of all U.S. corporate profits along with employee compensation out of line with norms for individuals of comparable ability. Data on concentration in well-defined banking markets are quite scarce, but fragmentary evidence suggests considerable monopoly pricing power in some product markets. Mergers that lead to concentration have for decades been the focus of antitrust activity. But a review of the record shows an emphasis on mergers that raise local banking market concentration and nearly total neglect of other important lines on which data are lacking. If antitrust actions were to be taken against the concentration of power in those lines, offsetting advantages in the form of realized scale economies would have to be weighed. A review of the most recent evidence suggest that difficult tradeoffs might be confronted.
Scherer, F.M. "Financial Mergers and Their Consequences." HKS Faculty Research Working Paper Series RWP13-019, June 2013.