Impact of Banking Acquisitions on Local Market Concentration in Florida

Southeastern Geographer Vol. 30, No. 1, May 1990, pp. 1-16 IMPACT OF BANKING ACQUISITIONS ON LOCAL MARKET CONCENTRATION IN FLORIDA J. Dennis Lord INTRODUCTION. The 1980s was a period of major changes in the structure of the Florida banking industry. These changes were the result of a number of factors including the state's passage of branching legislation in the late 1970s and its enactment of an interstate banking law in the mid-1980s. (1) The former permitted branching across county lines, although this was permitted only via acquisition or merger and not by de novo expansion. Interstate banking legislation permitted bank holding companies (BHCs) headquartered in selected southern states to acquire Florida banks or BHCs if those same states reciprocated. The two pieces of legislation were responsible for a flurry of acquisition activity in the 1980s which altered the banking structure ofthe state in several ways. For example, a significant increase in bank concentration occurred at the state level, and between 1982 and 1988 the percentage of bank deposits held by the state's five largest banks increased from 24.8% to 35.7%. (2) This paralleled a similar trend for the nation as a whole during the same period. Changes in Florida's banking structure are especially apparent when one considers the 1987 status of what had been the 20 largest banks in the state in 1980 (Table 1). (3) While five of the state's six largest banks remained intact during the period, 13 of the other 14 banks had been acquired either by other Florida banks or by out-of-state BHCs. By early 1988 approximately one-third of the state's total banking assets were owned by out-of-state BHCs, evidence of the acquisitions during the mid-1980s by several BHCs from Georgia and North Carolina. (4) In fact, the $36 billion of Florida banking assets owned by out-of-state BHCs in 1988 was the largest sum of interstate assets for any state. (5) ACQUISITION ACTIVITY AND LOCAL MARKET CONCENTRATION . Bank concentration has been a major concern of industry economists and bank regulators because of its alleged relationship with comDr . Lord is Professor of Geography at the University of North Carolina at Charlotte in Charlotte, NC 28223. Southeastern Geographer petition levels and, therefore, the price of bank services, e.g., interest rates and charges for various services. While it is clear that acquisition activity of both an intrastate and interstate nature has led to increased concentration levels at the national, regional, and state levels, it is not clear how this acquisition activity has affected concentration levels in local banking markets. The consensus seems to be that there will be no change. Rhoades has suggested that antitrust laws and their application will likely have a much greater effect on concentration than interstate banking alone. (6) Similarly, Savage has concluded that interstate TABLE 1 STATUS IN 1987 OF THE 20 LARGEST FLORIDA BANKING ORGANIZATIONS IN 1980 Bank Holding Company Status in 1987 1.Southeast Banking Corporation 2.Barnett Banks of Florida 3.Sun Banks of Florida 4.Flagship Banks 5.Florida National Banks 6.First Florida Banks 7.Atlantic Bancorporation 8.Ellis Banking Corporation 9.Landmark Banking Corporation 10.Southwest Florida Banks 11.Century Banks 12.Exchange Bancorporation 13.Pan American Bancshares 14.ComBanks Corporation 15.Florida Commercial Banks 16.Gulfstream Banks 17.First Marine Banks 18.First Bankers Corporation 19.City National Bank 20.First State Banking Corporation Unchanged Unchanged Unchanged Intrastate acquisition by Sun Banks Unchanged Unchanged Interstate acquisition by First Union Interstate acquisition by NCNB Interstate acquisition by C&S Interstate acquisition by C&S Intrastate acquisition by Sun Banks Interstate acquisition by NCNB Interstate acquisition by NCNB Intrastate acquisition by Barnett Banks Interstate acquisition by First Union Interstate acquisition by NCNB Intrastate acquisition by Barnett Banks Interstate acquisition by First Union Unchanged Intrastate acquisition by Barnett Banks Source: Economic Review, Federal Reserve Bank of Atlanta, May 1985, and the Banking Expansion Reporter, 1987. Vol. XXX, No. 1 banking simply results in the replacement of an existing bank with another bank. (7) This paper argues, however, that both interstate banking and intrastate acquisition activity do have the potential to increase concentration in local markets, i...