ABSTRACT
Most explanations of the V.S. bank merger wave have emphasized operational efficiency. That is, they have argued that bank mergers can be explained by merging banks' desire to enhance safety and soundness and/or to boost their productivity in supplying financial services. Four distinct operating-efficiency explanations have been proposed: First, mergers enhance safety and soundness by allowing stronger banks to absorb weak or failing banks; second, mergers enhance safety and soundness by allowing diversification into new markets; third, mergers enhance productivity by allowing banks to exploit economies of scope; and fourth, mergers enhance productivity by allowing banks to attain greater economies of scale. The next several sections consider these four rationales in turn, considering the reasoning and evidence supporting each. This review of the evidence on operating-efficiency explanations for bank mergers concludes that these explanations are not sufficient to explain the sustained and continuing U.S. bank merger wave.
