The bank merger environment & its effect on commercial & industrial real estate markets.

The advent of a substantial number of intrastate and interstate bank mergers and acquisitions has led to a large volume of research that has questioned the potential economic and political implications of these events (1,3,7,8,9,10,11,13,19,24). The vast majority of this research has focused on two issues: (1) the potential anti-competitive effects; or (2) the potential cost differentials that are likely to exist in a post-event environment (12,15,16,17,18,20,21,25,26,27). Most of this research has tested for the likelihood of significant differences in the level of interest rates paid on bank deposits, or the availability of total loan-able funds in a banking market before and after a merger or acquisition event. In general, this research has suggested that the likelihood of differentials in interest rates on loans or deposits would indicate a competitive advantage for a merger partner relative to its local counterparts. Any sustained differential would therefore suggest that bank mergers or acquisitions aff ect the competitiveness of the local post-event bank environment.

All of the studies have concluded that no "local effects" are evident in the data and therefore mergers and acquisitions do not create any anti-competitive elements. (1) Furthermore, it is argued that because banking products are generally homogenous and substitute sources of funding are readily available, future mergers or acquisitions are unlikely to create an anti-competitive environment (4).

However, when the focus of the research is shifted from the deposit-side of the balance sheet to the asset-side of the balance sheet, and the post-event effects in the discrete lending environment are tested, i.e. the commercial and industrial real estate markets, the agricultural production lending market, etc., rather than the availability of total loanable funds, the findings of "no local effects" may no longer be valid. Furthermore, the assumptions of homogeneity and substitutability do not appear to be supported since, for example, the risk, earnings, and maturities, etc., of a residential real estate loan are not comparable to a loan to a small business for an expansion.

The data and analysis in this study demonstrate that "local effects" do exist when the discrete lending categories are analyzed. The results of the analysis demonstrate many instances where significant concentrations and market dominance in post-acquisition environments exist (5,14,22,23).

In addition, Besanko points out that the lack of monopoly pricing elements, (in this case higher interest rates charged), is not necessarily indicative of the level of competition in the market. Instead, the existence of a lack of inter-firm competition may be evident in the operational characteristics of the market (4). In the market for commercial and industrial real estate lending, the lack of competition can lead to a situation where very few banks are setting virtually all of the policies and standards for a very large group of borrowers. For example, the parent organization's loan committee would likely set credit analysis procedures, credit scoring requirements, collateral requirements, repayment schedules, etc., for all operating units. Since extensive intrastate merger activity could result in a situation where a substantial number of previously independent banks are now governed by a single, more standardized lending policy, the potential is increased for commercial and industrial real estate borrow ers to be penalized or even excluded.

PURPOSE OF THE STUDY

The purpose of the study was to demonstrate the extent to which a discrete category of lending; i.e., commercial and industrial real estate lending, can become very concentrated in a very few banks in local banking markets as a result of inter- and intrastate bank mergers and acquisitions. The study results show that in some states these concentrations are so significant in the post-event environment, that there is virtually no competition among banks in the market for commercial and industrial real estate lending.

FRAMEWORK OF THE STUDY

The study period 1982 to 1999 was chosen because it encompassed a vast number of bank mergers and acquisitions and is consistent with the 1982 Justice Department Merger Guidelines. These revised guidelines provided for a more lenient regulatory environment with respect to approval of merger and acquisition activity. In addition, this time period allows the use of the most complete FDIC and Federal Reserve Bank data relative to bank merger and acquisition activity including the year-end FDIC Call and Income Reports and the Federal Reserve Bank Holding Company Acquisition and Merger Data Report.

Specifically, the Department of Justice has for many years published formal guidelines that identify structural changes resulting from mergers that are likely to cause the department to challenge a merger. Since 1982, the department has based its merger guidelines on the Herfindahl-Hirschman Index of Concentration (HHI). This measure, which is also used by the bank regulatory agencies, is calculated by squaring the market share of each firm competing in a defined geographic banking market and then summing the squares. The HHI can range from zero in a market having an infinite number of firms to 10,000 in a market having just one firm (with 100 percent market share).

The HHI is a particularly useful tool for bank merger analysis because it accounts for the presence of every competitor in a market and provides a measure of the structural effect of a merger of any firms in a market. In addition, the squaring of the market shares gives greater weight to firms that have large market shares. This weighting of the largest competitors in a market is consistent with the economic theories that predict weak competition in markets in which a few competitors hold a large combined market share (14).

This study used all commercial banks in the 50 United States over the period 1982 to 1999. Each bank's total assets, total loans, total deposits, and total commercial and industrial real estate loans were obtained from the FDIC year-end Call and Income Report data (8). A Herfindahl-Hirschman Index number was calculated for each of these balance sheet variables on a state-by-state basis for each study year (14,22,23). The HHI therefore provides a summary measure of market concentration that reflects the proportion of the total assets, deposits, or loans, etc., accounted for by each firm serving the market (25). The HHI is calculated in the following manner:

C = [summation over (N/i=1)] [A.sup.2.sub.i]

Where [A.sup.2.sub.i] represents the percentage of the market-area deposits or assets controlled by the i'th bank in the market. For presentation purposes, C is divided by 10,000 in order to demonstrate the percentage of the market controlled by the largest banks. The number of equivalent firms is then calculated by dividing one by the percentage of the market controlled by the largest banks. (2) The Justice Department defines bank markets where C exceeds 1800 as a highly concentrated market (14,22). This translates to a decimal of .1800 as a highly concentrated market with a numbers-equivalent threshold of 5.556 banking units (23).

DATA & ANALYSIS

Table 1 presents the total number of dollars of bank loans classified as commercial and industrial real estate loans by year for selected states and U.S. totals. Tables 2 through 7 present the HHI and the numbers-equivalent calculations for six representative states. (3) Each table, by state, contains the variables: year, the number of banks as of year-end, the HHI for total assets, the HHI for total loans, the HHI for total deposits, the HHI for commercial and industrial real estate, and the numbers-equivalent for the number of banking units based on the HHI for commercial and industrial real estate loans.

In order to assess the degree of concentration in a post-merger market environment for commercial and industrial real estate lending, an analysis of the HHI for commercial and industrial real estate loans and the numbers-equivalent of units on a state-by-state basis provided the most insight. For example, Tables 2 and 3 depict the post-merger commercial and industrial real estate lending environment of two states, Pennsylvania and Texas, with very large commercial and industrial bases. Note that in Pennsylvania, the number of banks declined from 349 to 193 and in Texas from 1601 to 753 over the study period. In both of these states as the number of operating banking units has fallen, the numbers-equivalent columns, column 8, in both Tables 2 and 3, indicate that the number of active bank lending participants in the commercial and industrial real estate market has also fallen, indicating an increased pattern of concentration in both of these markets. Yet the HHI figures and the numbers-equivalent figures indic ate the commercial and industrial real estate environment remained relatively broad-based, and dispersed across a large number of banks with no Pennsylvania bank controlling more than 9 percent and no Texas bank controlling more than 5 percent of the commercial and industrial real estate market within the state.

However, Tables 4 and 5 present the data and analysis for Arizona and Rhode Island over the same study period and depict a substantially different environment for commercial and industrial real estate lending. For example, Arizona is one of only five states over the study period that maintained a relatively stable number of operating banking units with the number of banks ranging from a high of 54 in 1986 to a low of 34 in 1994 and 1995. Yet even with a minimum of 34 operating units in the state, the results in Table 4 indicate substantial market dominance in every study category in virtually every year where the index number exceeds 0.1800. Of special significance to this study is the fact that the concentration index for commercial and industrial real estate lending and the resulting numbers-equivalent of active market participants, columns 7 and 8 of Table 4, indicate that the concentration ratios exceeded the Justice Department guidelines in every year of the study.

In Table 5, representing the commercial and industrial real estate lending market in Rhode Island, the pattern of a very highly concentrated market is also depicted with columns 7 and 8 indicating figures exceeding the Justice Department Guidelines in 17 of the 18 years. What is also significant is that while the commercial and industrial real estate lending markets are highly concentrated in both states throughout the study period, the high level of market dominance in total lending, (column 5), and total deposits, (column 6), does not occur except for the year 1998.

Furthermore, Tables 4 and 5 indicate that significant concentrations existed in the commercial and industrial real estate lending markets prior to the start of the extensive merger and acquisition activity in both Arizona and Rhode Island. More importantly, nine states plus the District of Columbia demonstrated concentration measures exceeding the Department of Justice guidelines prior to the adoption and implementation of the 1982 merger and acquisition concentration guidelines. Similar data for all 50 states shows that 17 demonstrated significant concentrations in the market for commercial and industrial real estate lending at some point during the study period. Of these states, eight states had at least one year where there were approximately three or less competitors effectively lending in the commercial and industrial real estate markets.

Tables 6 and 7 provide the results for the lending environment for commercial and industrial real estate in the states of Alabama and Minnesota during the study period. These results show a shift from a highly diverse, broad-based lending environment to one that is highly concentrated within the state during the study period.

Both states demonstrated the relationship between intrastate bank mergers and increased concentrations in the commercial and industrial real estate lending markets. For example, Table 6, column 3 shows the decline in the number of operating banks in the state of Alabama which parallels the decline in the numbers-equivalent of active commercial real estate market participants, Table 6, column 8. This pattern of increased intrastate concentrations is also evident in Table 7 for the state of Minnesota.

An additional aspect of the data is the ability to evaluate the HHI and numbers-equivalent with respect to the Federal Reserve Merger and Acquisition report. For example, Table 6, column 3, shows a decline of three operating units from year-end 1986 to year-end 1987. Yet the actual number of intrastate mergers in Alabama during this period was 11. Likewise from year-end 1987 to year-end 1988, the number of operating units declined from 225 to 221. However, the actual number of bank mergers in this period was 12. The resolution of these apparent discrepancies is embodied in the FDIC Call and Income Reports where new bank formations in the state account for the year-to-year differences.

Furthermore, the FDIC data indicates whether a bank is engaging in a specific lending market, in this case, the commercial and industrial real estate market. The results of these comparisons are also directly consistent with the variation displayed in the numbers-equivalent in column 8 of the tables.

In Minnesota, Table 7, column 3, shows the number of banks declining over the study period from 762 in 1982 to 497 in 1999. As is the case in Alabama, the decline in the numbers-equivalent of active market participants, column 8, parallels the decline in the number of banks with the year-to-year variations resulting from new banks being created and entering the lucrative commercial and industrial real estate market (2). Invariably, these banks become attractive acquisition targets and creat a situtation where the commercial and industrial real estate lending market becomes further consolidated.

However, there is an additional aspect to the 1997 through 1999 data for both Alabama and Minnesota. In 1994, the Interstate Banking Efficiency Act was passed allowing bank holding companies to engage in interstate banking acquisitions starting June 1, 1997. In 1997, Alabama banks acquired 38 billion dollars in assets through 25 interstate bank mergers and acquisitions. Of this, $20 billion were in commercial and industrial real estate loans. Twenty-three of the 25 mergers and acquisitions were carried out by only three banks. Since these dollars are reported in the chartering state for the flagship bank, this means that a block of approximately $20 billion in commercial and industrial real estate loans has been further consolidated and is administered by only four Alabama banks by the end of 1997.

In 1998, 62 interstate mergers and acquisitions were completed by four banks. Of this, 51 were carried out by only two banks. This moved $39 billion of bank assets and $10 billion of commercial and industrial real estate loans under the control of four Alabama banks. In 1999, four major interstate acquisitions resulted in the addition of $37 billion in total banking assets and $11 billion of commercial and industrial real estate loans controlled by approximately four Alabama banks.

In Minnesota, although the acquisition strategy was somewhat different, the results are very similar to the Alabama experience. For example, in Alabama in 1997, 25 interstate acquisitions occurred resulting in an addition of $38 billion in total bank assets coming under the administrative control of the Alabama parent bank. In Minnesota, only 12 interstate acquisitions occurred in 1997. However, these 12 acquisitions brought over $60 billion in total bank assets under the administrative control of several Minnesota banks including $9.5 billion of commercial and industrial real estate loans. The 1998 and 1999 data shows only four more interstate acquisitions with $26 billion being added in total assets and $5 billion in commercial and industrial real estate loans.

In addition, both states continued a consolidation of in-state banking assets: in Alabama, nine intrastate mergers in 1997 and eight intrastate mergers in 1998; in Minnesota, 26 intrastate mergers in 1997 through 1999. Furthermore, the EDIC Call and Income reports support the conclusion that both the intrastate and interstate acquisitions tended to target banks with very similar loan portfolio compositions (6). This is directly consistent with the decline in the numbers-equivalent of active market participants in commercial and industrial real estate lending in both Alabama and Minnesota.

SUMMARY AND CONCLUSIONS

If the focus of the research proposition: "it is likely that intrastate bank mergers and acquisitions have the potential to create an anticompetitive lending market" is shifted to the asset-side of the bank's balance sheet and the post-event effects in discrete lending sectors are analyzed in specific geographic banking markets, (i.e., commercial and industrial real estate lending), the findings of "no local effects" does not appear to hold. Furthermore, the assumptions of homogeneity and substitutability are no longer plausible. With regard to the assumption of substitutability among or between bank loans, this does not appear realistic given the different risk-return profiles. The differences in collateral requirements and the difference in the multitude of economic factors would suggest that no other type of loan could be a viable substitute for commercial and industrial real estate loans. Second, while the assumption of substitutability from different sources of capital in the commercial and industrial re al estate lending market is reasonable for large investors, it is likely that commercial banks are still the major suppliers of funds for land sales for medium and small investors.

While prior research has focused primarily on deposit effects and loan pricing, analysis of the empirical results over the 18-year study period in this article support the conclusion that significant concentration effects either have been in existence prior to or have resulted from the intrastate and interstate merger and acquisition activity. The effect of this extensive consolidation and subsequent concentration of capital sources within the sector is that relatively few entities will now be in a position to set policies and standards for loan terms and conditions, approval criteria, and other economic factors irrespective of the loan pricing which is likely to be a function of the general economic environment and the individual customer relationship (27). The effects of this consolidation and the resulting standardization of the lending criteria have the potential for excluding some previously acceptable commercial and industrial real estate borrowers and may have the tendency to exacerbate problems in the local business environment when other economic difficulties arise.

While not within the scope of the research question addressed in this study, in those commercial and industrial lending markets where only one or two banks have been the major acquisition leader(s), an additional problem may arise as the result of the magnitude of the market share inequality between the leader(s) and the remaining lenders (16, 23, 25). This inequality of market share further magnifies the ability of larger entities to demonstrate a position of market dominance in setting policies, lending standards, and approval criteria. This assumption of increased market dominance is testable and appears to be supported by the data and analysis where numerous intrastate and interstate mergers and acquisitions were reported in the study as the result of the expansion activity of only one or two banks. REI Table 1 Total U.S. and Select States Commercial Industrial Real Estate Loans (000's) YR U.S. Total CIRE Pennsylvania Texas Arizona Rhode Island 82 161,032,989 7,177,926 14,524,405 1,371,864 1,604,061 83 181,118,288 7,149,654 21,563,028 1,674,492 1,762,950 84 204,125,548 7,674,400 28,900,032 2,552,032 1,094,271 85 239,005,705 8,496,803 31,927,231 3,894,096 1,511,362 86 292,526,751 11,921,934 33,139,871 4,854,203 1,870,212 87 344,943,896 14,775,218 30,509,439 5,196,848 2,410,385 88 382,224,001 16,945,233 21,510,419 5,110,277 3,060,963 89 419,389,105 19,163,270 17,660,170 4,288,423 2,933,831 90 429,769,828 20,463,331 14,160,968 3,258,902 2,508,146 91 413,974,954 19,849,752 13,545,420 2,612,837 2,328,415 92 394,297,052 19,140,263 14,039,712 2,370,129 1,968,210 93 392,868,109 19,334,006 15,016,674 2,599,520 2,083,029 94 408,912,887 18,048,008 17,333,647 3,086,039 2,117,908 95 432,572,226 18,315,130 20,557,379 3,844,313 2,095,988 96 460,043,067 26,017,435 21,215,870 4,440,130 971,364 97 499,714,408 27,834,216 23,685,718 4,146,140 6,406,833 98 551,155,986 20,837,189 23,036,909 4,796,424 5,906,462 99 640,547,638 22,457,675 27,318,926 5,629,508 6,252,672 YR Alabama Minnesota 82 1,224,349 1,942,114 83 1,374,502 2,255,716 84 1,672,023 2,558,200 85 2,020,844 2,823,289 86 2,582,640 3,217,335 87 3,297,911 3,439,478 88 3,897,545 3,701,496 89 4,374,428 3,976,741 90 4,708,617 4,062,235 91 5,151,777 4,099,029 92 5,752,188 4,155,823 93 6,414,167 4,298,600 94 7,328,256 4,949,062 95 8,427,774 5,698,826 96 10,258,710 6,418,664 97 19,446,126 15,946,282 98 28,977,550 17,166,979 99 39,051,011 21,064,278 Table 2 Pennsylvania Commercial Industrial Real Estate Loans STATE YR n HHI_2170 HHI_2122 HHI_2200 HHI_CIRE num_equiv PA 82 349 0.0353 0.0376 0.0234 0.0172 58.26 PA 83 341 0.0324 0.0372 0.0207 0.0228 43.83 PA 84 326 0.0379 0.0452 0.0247 0.0340 29.43 PA 85 312 0.0386 0.0435 0.0236 0.0380 26.29 PA 86 300 0.0356 0.0428 0.0266 0.0378 26.44 PA 87 295 0.0324 0.0341 0.0259 0.0319 31.35 PA 88 293 0.0323 0.0332 0.0254 0.0280 35.78 PA 89 299 0.0351 0.0349 0.0269 0.0273 36.57 PA 90 301 0.0369 0.0362 0.0308 0.0280 35.67 PA 91 290 0.0488 0.0482 0.0427 0.0309 32.31 PA 92 281 0.0512 0.0490 0.0458 0.0315 31.70 PA 93 261 0.0750 0.0726 0.0585 0.0398 25.12 PA 94 245 0.0933 0.0898 0.0682 0.0480 20.82 PA 95 224 0.0928 0.0958 0.0751 0.0484 20.65 PA 96 218 0.1082 0.1121 0.0977 0.0841 11.89 PA 97 212 0.1155 0.1301 0.1005 0.0806 12.41 PA 98 197 0.1521 0.1831 0.1260 0.0794 12.60 PA 99 193 0.1412 0.1618 0.1168 0.0634 15.78 Table 3 Texas Commercial Industrial Real Estate Loans STATE YR n HHI_2170 HHI_2122 HHI_2200 HHI_CIRE num_equiv TX 82 1601 0.0161 0.0192 0.0109 0.0237 42.11 TX 83 1733 0.0151 0.0185 0.0087 0.0233 42.94 TX 84 1853 0.0142 0.0180 0.0080 0.0224 44.58 TX 85 1936 0.0135 0.0166 0.0075 0.0196 51.02 TX 86 1971 0.0117 0.0159 0.0060 0.0210 47.59 TX 87 1766 0.0166 0.0230 0.0077 0.0306 32.73 TX 88 1492 0.0308 0.0278 0.0263 0.0259 38.60 TX 89 1313 0.0475 0.0395 0.0394 0.0308 32.48 TX 90 1183 0.0477 0.0446 0.0447 0.0218 45.91 TX 91 1121 0.0465 0.0471 0.0452 0.0237 42.23 TX 92 1089 0.0525 0.0706 0.0468 0.0305 32.75 TX 93 1011 0.0627 0.0855 0.0530 0.0427 23.44 TX 94 980 0.0591 0.0857 0.0471 0.0343 29.17 TX 95 935 0.0670 0.0973 0.0444 0.0419 23.86 TX 96 878 0.0536 0.0587 0.0497 0.0254 39.33 TX 97 838 0.0786 0.0733 0.0695 0.0244 40.95 TX 98 797 0.0393 0.0507 0.0386 0.0212 47.10 TX 99 753 0.0462 0.0554 0.0404 0.0265 37.72 Table 4 Arizona Commercial Industrial Real Estate Loans STATE YR n HHI_2170 HHI_2122 HHI_2200 HHI_CIRE num_equiv AZ 82 39 0.2829 0.2766 0.2708 0.1913 5.23 AZ 83 47 0.2741 0.2634 0.2670 0.1944 5.14 AZ 84 46 0.2585 0.2550 0.2575 0.2102 4.76 AZ 85 52 0.2505 0.2473 0.2469 0.2425 4.12 AZ 86 54 0.2338 0.2323 0.2419 0.2318 4.31 AZ 87 49 0.2253 0.2200 0.2394 0.2194 4.56 AZ 88 47 0.2333 0.2229 0.2394 0.2270 4.41 AZ 89 43 0.2303 0.2347 0.2367 0.2320 4.31 AZ 90 38 0.1802 0.1777 0.1932 0.2173 4.60 AZ 91 39 0.1703 0.1668 0.1894 0.2258 4.43 AZ 92 38 0.1943 0.2055 0.2179 0.2132 4.69 AZ 93 37 0.1942 0.2081 0.2171 0.2367 4.23 AZ 94 34 0.1777 0.1901 0.2246 0.2396 4.17 AZ 95 34 0.1586 0.1638 0.2070 0.2695 3.71 AZ 96 36 0.1815 0.1906 0.2622 0.3608 2.77 AZ 97 41 0.2116 0.2233 0.3266 0.3438 2.91 AZ 98 43 0.2862 0.3122 0.3371 0.3389 2.95 AZ 99 45 0.3092 0.3089 0.3396 0.3194 3.13 Table 5 Rhode Island Commercial Industrial Real Estate Loans STATE YR n HHI_2170 HHI_2122 HHI_2200 HHI_CIRE num_equiv RI 80 17 0.0289 0.0296 0.0219 0.1914 5.23 RI 81 18 0.0334 0.0341 0.0232 0.2062 4.85 RI 82 18 0.0353 0.0376 0.0234 0.2201 4.54 RI 83 18 0.0324 0.0372 0.0207 0.1968 5.08 RI 84 13 0.0379 0.0452 0.0247 0.2743 3.65 RI 85 16 0.0386 0.0435 0.0236 0.2271 4.40 RI 86 15 0.0356 0.0428 0.0266 0.2586 3.87 RI 87 12 0.0324 0.0341 0.0259 0.2621 3.82 RI 88 12 0.0323 0.0332 0.0254 0.2061 4.85 RI 89 13 0.0351 0.0349 0.0269 0.2082 4.80 RI 90 11 0.0369 0.0362 0.0308 0.2214 4.52 RI 91 13 0.0488 0.0482 0.0427 0.2096 4.77 RI 92 12 0.0512 0.0490 0.0458 0.3173 3.15 RI 93 10 0.0750 0.0726 0.0585 0.3280 3.05 RI 94 9 0.0933 0.0898 0.0682 0.2855 3.50 RI 95 8 0.0928 0.0958 0.0751 0.3070 3.26 RI 96 8 0.1082 0.1121 0.0977 0.0588 16.99 RI 97 9 0.1155 0.1301 0.1005 0.7181 1.39 RI 98 7 0.1521 0.1831 0.1260 0.7226 1.38 RI 99 6 0.1412 0.1618 0.1168 0.7153 1.40 Table 6 Alabama Commercial Industrial Real Estate Loans STATE YR n HHI_2170 HHI_2122 HHI_2200 HHI_CIRE num_equiv AL 82 294 0.0382 0.0346 0.0318 0.0395 25.33 AL 83 273 0.0533 0.0575 0.0442 0.0521 19.19 AL 84 269 0.0561 0.0694 0.0465 0.0680 14.71 AL 85 240 0.0743 0.0912 0.0628 0.0890 11.24 AL 86 228 0.0863 0.1035 0.0776 0.0966 10.35 AL 87 225 0.0858 0.0993 0.0770 0.1057 9.46 AL 88 221 0.0945 0.1059 0.0876 0.1077 9.29 AL 89 221 0.0917 0.1055 0.0844 0.1072 9.33 AL 90 220 0.0901 0.1027 0.0847 0.1026 9.75 AL 91 219 0.0913 0.1006 0.0840 0.0949 10.54 AL 92 217 0.0901 0.1042 0.0825 0.0961 10.40 AL 93 214 0.0885 0.1035 0.0817 0.0908 11.02 AL 94 208 0.0932 0.1058 0.0852 0.0936 10.68 AL 95 186 0.1196 0.1318 0.1045 0.1644 6.08 AL 96 183 0.1219 0.1323 0.1026 0.1815 5.51 AL 97 175 0.1701 0.1806 0.1513 0.2484 4.03 AL 98 160 0.1818 0.1904 0.1739 0.2273 4.40 AL 99 156 0.1890 0.1927 0.1735 0.2121 4.71 Table 7 Minnesota Commercial Industrial Real Estate Loans STATE YR n HHI_2170 HHI_2122 HHI_2200 HHI_CIRE num_equiv MN 82 762 0.0387 0.0357 0.0228 0.0344 29.04 MN 83 754 0.0415 0.0398 0.0238 0.0362 27.64 MN 84 739 0.0474 0.0470 0.0275 0.0320 31.21 MN 85 736 0.0507 0.0530 0.0296 0.0440 22.70 MN 86 733 0.0564 0.0582 0.0291 0.0418 23.93 MN 87 704 0.1016 0.1076 0.0643 0.0736 13.58 MN 88 653 0.1006 0.1278 0.0751 0.0727 13.76 MN 89 637 0.0892 0.1166 0.0680 0.0691 14.46 MN 90 626 0.0866 0.1089 0.0687 0.0661 15.13 MN 91 608 0.0795 0.1070 0.0639 0.0600 16.67 MN 92 593 0.0974 0.1297 0.0656 0.0445 22.47 MN 93 573 0.1254 0.1555 0.0972 0.0520 19.22 MN 94 563 0.1189 0.1304 0.0780 0.0538 18.60 MN 95 525 0.1242 0.1323 0.0780 0.0636 15.73 MN 96 520 0.1137 0.1228 0.0790 0.0681 14.68 MN 97 520 0.2890 0.3330 0.2757 0.4012 2.49 MN 98 514 0.2688 0.3147 0.2585 0.3893 2.57 MN 99 497 0.2841 0.3257 0.2729 0.4223 2.37

FOOTNOTES

(1.) For a detailed argument that disputes the research that suggests that no anticompetitive cost effects will evolve in a post-merger environment, see Dymski, Gary A., The Bank Merger Wave: The Economic Causes awl Social Consequences of Financial Consolidation, published by M.E. Sharp Inc., June 1999.

(2.) The numbers-equivalent of firms is an important measure of bank concentration because it allows the reader to compare the percent of the market controlled by the largest banks relative to the number of banks in the state.

(3.) Tables for all 50 states are available, upon request, by emailing: ECFI-TOS@Nicholls.edu

NOTES & REFERENCES [as indicated in brackets throughout manuscript]

(1.) Anthony Abbate, "Interstate Banking: More Harm than Good," American Banker, Vol.161, no.3, January 4, 1996, p.18.

(2.) John Bell, "Industrial Is Hot," Mortgage Banking, Vol.61, no.1, October 2000, pp.136-144.

(3.) Don Benson, "Dallas Firm to Buy Life Bank of Riverdale California," The Business Press, March 16, 1998, p.316.

(4.) David Besanko, et al., Economics of Strategy, (John Wiley and Sons, Inc., 1996), pp.269-272.

(5.) Marc Biron, "Community and Regional Bank Management of Geographic Concentration Risk," Journal of Lending and Credit Risk Management, Vol.80, no.11, July 1998, p.63.

(6.) Richard Borgman and John Ford, "Loan Specialization and Income: An application of Mixture Analysis," American Business Review, Vol.19, no.2, June 2001, pp.45-49.

(7.) Thomas Brown, "Strategists or Lemmings," Banking Strategies, Vol.74, no.5, September-October 1998, p.68.

(8.) Call Reports, Federal Financial Institutions Examination Council, Federal Deposit Insurance Corporation, Washington D.C., 1982-1999.

(9.) Brett Chase, "Expansion-Minded Super-regional Eyeing Atlanta," American Banker, February 17, 1999, p.1.

(10.) Kenneth Clime, "With Interstate Barriers Crumbling South's Banks Are Takeover Targets," American Banker, February 2, 1994, p.4.

(11.) Carl Cronan, "Expansion Plans: Florida Bank Wants Growth and Independence," Tampa Bay Business Journal, Vol.18, no.42, October 16, 1998, p.20.

(12.) Robert DeYoung, et al, "The Impact of Out-of-State Entry on the Cost Efficiency of Local Commercial Banks," Journal of Economics and Business,Vol.50, no.2,March-April 1998, P.19.

(13.) "Statement by Richard F. Syron, president, Federal Reserve Bank of Boston, before the Subcommittee of Financial Institutions Supervision, Regulation and Deposit Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, June 22, 1993 (Interstate Banking)," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System, Washington D.C., Vol.79, no.8, August 1993, p.777.

(14.) "Concentration, the HHI, and the Department of Justice Merger Guidelines," Federal Reserve Bulletin Board of Governors of the Federal Reserve System, Washington D.C., Vol.84, no.9, September 1998, p.704.

(15.) Anthony Gandy, "Making a Merger Pay," The Banker,Vol.149, January 1999, p.68.

(16.) Timothy Hannan, "Market Share Inequality, the Number of Competitors, and the HHI: An Examination of Bank Pricing," Review of Industrial Organization,Vol.12, 1997, pp,23-35.

(17.) Joseph Hughes, et al., "Efficient Banking Under Interstate Branching," Journal of Money Credit and Banking, Vol.28, no.4, November 1996, p.1045.

(18.) William Jackson III, and Robert Eisenbeis, "Geographic Integration of Bank Deposits Markets and Restrictions on Interstate Banking: A Co-Integration Approach," Journal of Economics and Business, VoL49, no.4, July-August 1997, pp.335-346.

(19.) Steve Klinkerman, "The Power of Saying No," Banking Strategies, Bank Administration Institute, Vol.74, no.1, January-February 1998, p.38.

(20.) Jeffrey Kutler, "Bigness Apostles Refine Message: Size is a Necessity, Not a Virtue, American Banker, Vol.163, December 11, 1998.

(21.) Jane Linder and Dwight Crane, "What it takes to Make Bank Mergers Pay," American Banker, Vol,157, no.140, July 22, 1992, p.4.

(22.) Stephen Rhoades, "The Herfindahl-Hirschman Index," Federal Reserve Bulletin, Board of Governors Federal Reserve System, Vol.79, March 1993, pp.188-189.

(23.) Stephen Rhoades, "Market Share Inequality, the HHI, and Other Measures of the Firm-Composition of a Market," Review of Industrial Organization, Vol.10, 1995, pp.657-674.

(24.) J. Rose and J. Walker, "Geographic Diversification in Banking, Market Share Changes, and the Viability of Small Independent Banks," Journal of Financial Services Research, Vol.4, no.1, March 1990, p.5.

(25.) Peter Rose, "Interstate Banking: Performance, Market Share and Market Concentration Issues," Antitrust Bulletin, Vol.37, no.3, Fall 1992, p.601.

(26.) Peter Rose, "The Diversification and Cost Effects of Interstate Banking," The Financial Review, Vol.31, no.2, May 1996, pp.43l-4S2.

(27.) Angus T. Shearer, et, Al., "Profitability measures and market reality: The Paradox of Commercial Lending Competition," Commercial Lending Review, Vol.14, no.3, Summer 1999, pp.35-44.

ABOUT THE AUTHOR

Thomas O. Stanley, Ph.D., is a professor of finance at Nicholls State University in Thibodaux, LA. (E-mail:ECFI-TOS@Nicholls.edu)

John P. Lajaunie, Ph.D., is an associate professor of finance at Nicholls State University in Thibodaux, LA. (E-mail: ECFI-JPL@Nicholls.edu.)

Craig Roger is an assistant professor of information sciences at St. Catherine's University in St., Paul, MN. (E-mail: Croger@stkate.edu)