The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It’s Been

Joseph M. Scalise,

JMS

Joseph M. Scalise Board of Governors of the Federal Reserve System

Allen N. Berger, and

ANB

Allen N. Berger Board of Governors of the Federal Reserve System and Wharton Financial Institutions Center

Anil K. Kashyap

AKK

Anil K. Kashyap University of Chicago

Discussants: Benjamin M. Friedman and

BMF

Benjamin M. Friedman Harvard University

Mark Gertler

MG

Mark Gertler

VIRTUALLY ALL ASPECTS of the U. S . banking industry have changed
dramatically over the last fifteen years. For instance, over one-third of
all independent banking organizations (top-tier bank holding companies
and unaffiliated banks) disappeared over the period 1979-94, even while the assets of the industry were growing. On the asset side, the
industry has lost market power over many of its large borrowers, who
can now choose among many alternative sources of finance. On the
liability side, the industry has evolved from a position of protected
monopsony, in which banks purchased deposit funds at regulated, below-
market interest rates, toward a market setting in which they must
pay more competitive prices in order to raise funds. With respect to
individual consumers, electronic interfaces such as automated teller
machines and on-line banking have altered the way in which many
customers deal with their banks.