CONCENTRATION AND COMPETITION IN NEW ENGLAND BANKING*

Abstract

MANY CHANGES HAVE taken place in the structure of banking in New England since 1945. The most significant of these changes have been those associated with the increased number of bank mergers and the spread of branch banking. This study sets out to investigate the extent of these changes, to ascertain their causes, and to evaluate the desirability (or lack of it) of the continuation of these trends. Detailed data are presented on the extent of the postwar changes in the New England banking structure. Some of the reasons for bank mergers and the spread of branch banking are presented and analyzed. The principal reasons for bank mergers seem to be connected with management problems, loan limits, and the desire for branches. The latter, in turn, is based on the great postwar movement of families and firms to the suburbs. The arguments that have figured in professional and political debate concerning branch banking are examined in detail. One of the most frequently used arguments for branch banking is that it can better provide banking facilities for small towns. It was found that among the rural northern New England states a higher proportion of small towns had banking facilities in Maine and Vermont, which permit branch banking, than was the case in New Hampshire, which does not.' Among the industrialized southern New England states, a higher proportion of small towns in Rhode Island and Connecticut, which permit state-wide branch banking, had facilities than did Massachusetts, which restricts branch banking. Another argument in favor of branch banking is that the cost of operating a banking office as a branch is less than the cost of running the same office as a unit bank. Data were obtained on the operation of several New England banking offices which functioned as unit banks until a merger converted them to branches. Their operations as unit banks and as branches were compared. It was found that the cost advantages of operating a banking facility as a branch rather than as a unit bank were small or nonexistent.