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Before reading this essay, the average person most likely assumed that consolidation in the U.S. banking industry, which has been the norm for the past two decades, has reduced banking competition. This view is understandable because, over the past 20 years, mergers and acquisitions have cut the number of banking organizations to about half of its previous level. But a look at local banking markets—where banking competition actually takes place—tells a different story: Users of banking services still have many choices among competing providers. Today’s institutions have about 20,000 more branches than all of the banking organizations in the 1980s. And because of interstate branching, customers are likely to find banks with branches in many states across a region or even across the country. Technologies that either did not exist or were in their infancy two decades ago—for example, online banking and ATMs—now offer customers access to their accounts every moment of the day. Such dramatic changes in so relatively short a period naturally raise concerns about the safety and soundness of banking organizations and about the state of banking competition. The Federal Reserve, however, is responsible for ensuring—even as the banking industry consolidates—that institutions remain safe and sound, that they comply with all applicable laws and regulations, and that local banking markets remain vigorously competitive. To accomplish these goals, we (or one of the other primary federal regulators) review, adjust and, ultimately, approve or deny every application for a banking merger or acquisition to make certain that it satisfies all of the requirements set out in the antitrust laws. The requirements include financial condition, managerial resources, anti-money laundering safeguards, community convenience and needs, and local banking market competition. Only after we are satisfied that all of the requirements have been met can we approve a transaction. By engaging in such a thorough evaluation, we are indeed fulfilling our role of operating as a checkpoint in the banking consolidation process.
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