THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 303

CHAPTER 11

TA B L E 11- 3

Banking Industry: Structure and Competition 271

Ten Largest U.S. Banks, December 30, 2008
Assets
(US$ millions)

Share of All Commercial
Bank Assets (%)

1. JPMorgan Chase, Columbus, OH

1 746 242

14.06

2. Bank of America Corp., Charlotte, NC

1 471 631

11.85

3. Citibank, Las Vegas, NV

1 227 040

9.88

4. Wachovia Bank Held By Wells Fargo & Co.,
Charlotte, NC

635 476

5.12

5. Wells Fargo, Sioux Falls, SD

538 958

4.34

Bank

6. U.S. Bank, Cincinnati, OH

261 776

2.11

7. Bank of NY Mellon, New York, NY

195 164

1.57

8. Suntrust Bank, Atlanta, GA

185 099

1.49

9. HSBC Bank USA, McLean, VA

181 604

1.46

171 228

1.38

6 614 218

53.26

10. State Street B&T Corp., Boston, MA
Total

Source: Federal Reserve Statistics Release, Assets and Liabilities of Commercial Banks in the United States,
December 29, 2008, www.federalreserve.gov/releases/h8/20081229.

Does the large number of banks in the commercial banking industry in the
United States and the absence of a few dominant firms suggest that commercial
banking is more competitive than other industries? Advocates of restrictive state
branching regulations in the United States argued that regulations foster competition by keeping so many banks in business. But the existence of large numbers of
banks in the United States should be seen as an indication of a lack of competition, not the presence of vigorous competition. Inefficient banks were able to
remain in business because their customers could not find a conveniently located
branch of another bank.

Response
to Branching
Restrictions in
the United
States

An important feature of the U.S. banking industry is that competition can be
repressed by regulation but not completely quashed. As we saw earlier in the
chapter, the existence of restrictive regulation stimulates financial innovations that
get around these regulations in the banks search for profits. Regulations restricting branching have stimulated similar economic forces and have promoted the
development of two financial innovations: bank holding companies and automated teller machines.
A bank holding company is a corporation that owns
several different companies. This form of corporate ownership has important advantages for banks in that it has allowed them to circumvent restrictive branching
regulations, because the holding company can own a controlling interest in several
banks even if branching is not permitted. Furthermore, a bank holding company can
engage in other activities related to banking, such as the provision of investment
advice, data processing and transmission services, leasing, credit card services, and
servicing of loans in other states.

BANK HOLDING COMPANIES