Number of banks expected to shrink over next decade

August 14, 1991|By David R. Francis | David R. Francis,Christian Science Monitor

BOSTON — Later this decade the name "BankAmerica" may not be an exaggeration.

The San Francisco-based bank could well have branches in nearly every state in the country, instead of in just nine Western states as at present.

BankAmerica Corp. will have competition nationwide. Steven Felgren, a finance professor at Northeastern University here, forecasts that "in several years" there will be five to 10 "national banks" with branches in most states.

By law, most commercial banks can have deposit-taking branches only in a single state or region. But legislation that would end barriers to national banking is moving through Congress. It could pass this fall, Mr. Felgren says.

Major banks are gearing up for that possibility.

BankAmerica and Security Pacific Corp. announced Monday a stock-swap merger worth nearly $4 billion. The combined bank, if approved by regulators, will be the second-largest in the nation with more than $190 billion in assets. (Citicorp, with $217 billion, is first.) BankAmerica, the surviving name, will operate in 10 Western states.

Weeks earlier, two other pairs of large banks announced mergers. Chemical Banking Corp. and Manufacturers Hanover Corp., with assets totaling $135 billion, agreed last month to combine. NCNB Corp. and C&S/Sovran Corp., with assets totaling $118 billion, also decided to merge.

"The number of banks should shrink," says Gary Gorton, a professor of finance at the Wharton School of Finance in Philadelphia. "There are too many banks chasing after too few good loans."

"We are going to see a lot of mergers in the next few years," agrees Allan Meltzer, an economist at Carnegie-Mellon University in Pittsburgh.

The nation has about 12,000 commercial banks, vastly more than other industrial nation.

John Ballantyne, banking professor at Babson College in Wellesley, Mass., guesses that the number of banks might drop to 9,000 in several years. One reason for consolidation is that banks have lost an enormous amount of market share in the financing business. They now provide around 25 percent to 30 percent of the nation's credit needs, compared with 80 percent or 90 percent a few decades ago, notes Dr. Meltzer.

Financially sound major corporations now can raise most of the money they require more cheaply through commercial paper.

And interest rate deregulation in 1980 boosted the average cost of money for banks -- to the advantage of depositors.

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