Entry in Commercial Banking, 1962-78: Comment

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In recent issue of this journal, Ladenson and Bombara (1984) estimated model of new bank entry (net of failures) for the United States over the period 1962-78. They found that the annual rate of bank entry could be explained by several economic variables plus dummy variables for the years 1962-65 (Duml) and 1971-75 (Dum2). They attribute the positive, significant coefficient of Duml to the liberal chartenng policies of Comptroller of the Currency James J. Saxon, who served from 1961 to 1966. Similarly, the positive, significant coefficient of Dum2 is ascribed to rapid multibank holding company expansion during the early 1970s which, L&B argue, reflected a shift to federal regulatory policy more accommodating to entry than the policy inherent in the pre-1971 relation. Unfortunately, L&B give no specific inforrnation as to just how important holding company de novo bank expansion was dunng the period studied. Nor do they offer any supporting evidence, other than the significant coefficient of Dum2, for their claim that the 1971-75 penod represented a temporary reversion to Saxon policies to accommodate the explosive growth of multibank holding companies. Yet such evidence is important if one is to accept L&B's conclusion that federal chartering policy was liberalized during the early 1970s to accommodate the bank holding company movement. The purpose of this comment, therefore, is to examine the pattern of de novo bank expansion by holding companies over the period 1968-80 with particular emphasis on the early 1970s. The analysis suggests very different interpretation of the coefficient of Dum2 from that given by L&B. Data presented in Table 1 indicate that multibank holding company de novo expansion did indeed accelerate dunng the early 1970s, both in absolute terms and relative to the chartering activity of independent organizers. l As shown, the percentage of total new bank formations accounted for by bank holding companies climbed to peak of 25.8 percent in 1974, after which it declined to 10.1 percent in 1977 and then fluctuated in range of about 13-18 percent between 1978 and 98o.2