SOME EFFECTS OF AFFILIATIONS AMONG MUTUAL SAVINGS AND COMMERCIAL BANKS

Abstract

THE EFFECT of interlocking stock ownership and directorates among financial institutions on the and operations of the affiliate is a continuing issue of public policy.' It is of particular importance when the affiliates compete in the same product and geographic markets. However, the impacts of affiliation on both the market and the individual firms are difficult to measure. It is clear, for example, that such relationships can confound the traditional measures of market concentration and competition. More importantly, the links between affiliation and control as they effect the performance of the affiliate are particularly elusive empirically. In the earlier work of Berle and Means [3 ], Larner [ 12 ], and Vernon [ 15] control was viewed as the ability to direct corporate policy through the election of the majority of the board of directors. Others have interpreted control to mean merely the ability to influence the management and operating policies of the affiliate.2 From the viewpoint of public policy, however, the principal concern should be with the effects of affiliation on performance in the market place, regardless of the type or degree of control being exercised.3 For example, affiliation could lead to an effective reduction in the number of independent competitors in financial markets, many of which are already highly concentrated. Moreover, if affiliation results in increased prices and/or decreased output, then affiliate relationships have important implications for both resource allocation and the degree of competition in the market. This study examines the effects of affiliation between two types of financial institutions-mutual savings and commercial banks.4 Attention is limited to