THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 303

CHAPTER 11 TA B L E 11- Banking Industry: Structure and Competition 271 Ten Largest U.S Banks, December 30, 2008 Assets (US$ millions) Share of All Commercial Bank Assets (%) JPMorgan Chase, Columbus, OH 746 242 14.06 Bank of America Corp., Charlotte, NC 471 631 11.85 Citibank, Las Vegas, NV 227 040 9.88 Wachovia Bank Held By Wells Fargo & Co., Charlotte, NC 635 476 5.12 Wells Fargo, Sioux Falls, SD 538 958 4.34 Bank U.S Bank, Cincinnati, OH 261 776 2.11 Bank of NY Mellon, New York, NY 195 164 1.57 Suntrust Bank, Atlanta, GA 185 099 1.49 HSBC Bank USA, McLean, VA 181 604 1.46 171 228 1.38 614 218 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