Changes in the size distribution of U.S. banks: 1960-2005

• Published in: Economic quarterly - Federal Reserve Bank of Richmond Vol. 92; no. 4; pp. 291 - 316
• Main Authors: Janicki, Hubert P, Prescott, Edward Simpson
• Format: Journal Article
• Language: English
• Published: Richmond Federal Reserve Bank of Richmond 01.10.2006
• Subjects: 1960 AD; Banking - Concentration ratios - Measurement; Banking - United States; Banking industry; Banks; Changes; Company distribution practices; Distribution; Earthquakes; Economic research; Independent banks; Industrywide conditions; Marketing research; Markov analysis; Random variables; Services; Size of enterprise; Studies; Zipf's Law; United States; United States > US
• ISSN: 1069-7225; 2163-4556

In 1960, there were nearly 13,000 independent banks. By 2005, the number had dropped in half, to about 6,500. In 1960, the ten largest banks held 21% of the banking industry's assets. By 2005, this share had grown to almost 60%. A great deal of these changes started during the deregulation of the 1980s and 1990s. This article documents the extent of this change. It also documents the change in bank size dynamics, that is, the entry and exit of banks and the movement of banks through the size distribution. In many industries, the distribution of firm size is highly skewed to the right, that is, there are many small firms and a few large ones. The size distribution of banks has always been skewed, but it has become more so since the 1960s. A Markov model allows for straightforward predictions about changes to a size distribution. The researchers found that the lognormal distribution poorly fits the right tail of the size distribution.