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Tuesday, April 20, 2010

Concentration of the US Banking System


As noted in the post below this one, I don't think bank size and stability of the banking system are closely related, we still had financial meltdowns in the days when banks were small. But I do think bank size and political power are highly correlated, and that banks have far too much political influence. So the question is, why do banks need to be so much bigger today? If we were to cut the share of total commercial banking sector assets held by the top three banks back to its historical average of 10-15%, which still seems relatively concentrated, would that be a disaster? I certainly haven't seen convincing evidence that economies of scale require banks to be this large, so why allow it?

    Posted by on Tuesday, April 20, 2010 at 04:23 PM in Economics, Financial System, Market Failure | Permalink  Comments (20)


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