Question

Describe the size distribution of American banks and the concentration of industry assets inside the United States and comment on the implication that it presents for the public and the investors.

Answer 1

In recent decades there has been many changes to the US banking system we have noticed that has changed the size distribution of the banks. These changes in the regulatory have the clear objective to allow for a higher degree of changes to the horizontal and vertical structure of the banks.

There were two main regulatory changes have been made to change the size distribution of the banks, these changes are given below:

• The Riegle-Neal Interstate Banking and Branching Efficiency Act was passed in September 1994. The act allows banks and bank-holding companies to freely establish branches across state lines. In fact, the act came as the final step in a long process of gradual removal of interstate branching restrictions that took place at the state level during the late eighties and early nineties. This new flexibility in the branching regulation has opened the door to the possibility of substantial geographical consolidation in the banking industry. Indeed, geographical consolidation has always been one of the main channels used to achieve horizontal integration at an industry level.
• In November 1999 Congress passed the Gramm-Leach-Bliley Financial Services Modernization Act. It allows affiliations among banks, securities firms, and insurance companies, removing many long-standing restrictions over the horizontal and vertical integration of firms providing financial services.
• Some other theoretical explations of the size distribution of the banks are:

Product differentiation

Corporate governance