Understanding the Effects of the Merger Boom on Community Banks

Abstract

The merger boom in the U.S. banking industry has caused the number of banking organizations in the nation to fall by nearly a third since 1990. Most of this contraction has involved small community banks. ; A common perception is that most of these small banks are being absorbed by large banks. The disappearance of small banks is raising concerns in many communities because small banks are often a major source of personal services and relationship lending to local businesses and depositors. ; Jagtiani investigates the merger boom in detail and suggests that the merger boom actually has the potential to strengthen the community banking sector, as some community banks are taken over by other, more efficiently run community banks located in the same state. Thus, the community banks that have survived the merger boom may be in a good position to continue serving the local businesses and depositors who value personal service and relationship lending.

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