FIGURE 3 its late-1960s levels once inflation began declining in the early 1980s .
However , not every financial panic resulted in increased concentration . In some cases , such as the Panics of 1857 , 1873 , 1893 / 6 and 1907 , concentration only increased slightly . These crises originated in or disproportionately affected the largest financial markets that were populated by large banks that weathered the financial storms . The more recent Global Financial Crisis of 2007 – 2008 also generated no increase in concentration , and the subsequent Dodd – Frank Wall Street Reform and Consumer Protection Act of 2010 may have slightly reduced concentration by curbing the profitability of off-balance sheet operations and the associated advantages for large banks .
These examples illustrate the variable effects of financial crises on concentration , and the role that broader economic conditions leading up to and emerging from these crises influence the resulting patterns of concentration in the banking industry .
1837 and 1839 . Jackson ’ s veto of the Second Bank of the United States and subsequent withdrawal of federal funds triggered a nationwide banking panic , after which a series of state government defaults led to a second suspension of banks in 1839 . While most large Northeastern banks weathered the storm , many banks across the nation failed . The ramping up of railroad building the 1850s , and the passage of Free Banking Laws , returned the system to its previous trend of bank entry and branching .
Similarly , post-World War I bank instability drove an increase in concentration in the mid- to late-1920s . European demand for US crops during the war led to price increases , driving borrowing and land purchases . However , post-war , European farmers returned to their fields , causing a domino effect of plummeting crop prices , farmer bankruptcies and bank failures . Additionally , the land booms of
Page from Rand McNally Bankers Directory , 1939 .
the 1920s , exemplified by the Florida land boom , led to rapid growth and speculative frenzy . Banks overextended credit to developers , and when the unsustainable market collapsed in 1926 , it caused widespread bank and business closures .
Concentration temporarily spiked again in the mid-1970s to early 1980s . The OAPEC oil embargo in 1973 caused a sharp rise in oil prices and spurred excessive lending among many banks , especially in the southwestern oil states . Broader inflation and economic upheaval throughout the 1970s destabilized the banking sector . However , larger banks , such as Chase Manhattan Bank ( now part of JP Morgan Chase ), Citibank ( now Citigroup ) and Bank of America , were better equipped to weather these shocks . Each acquired several struggling banks , significantly increasing market share of the top five banks . Concentration returned to
Conclusions
The contrasting fates of SVB and JP Morgan highlight the challenge of balancing beneficial banking activities and risk-taking while implementing necessary safeguards . The historical concentration of banking in the United States has been influenced by economic and political changes , with deregulation of branching leading to increased concentration over time . Financial crises have also played a role , resulting in higher concentration as smaller banks were acquired or closed .
Although historical studies have elucidated the causes of the recent rise in bank concentration in the United States , more work is needed to understand the impact on systemic risk , efficiency and competition of large oligopolistic banks . These banks tend to be stable and efficient , benefiting from diversification , scale and market dominance , and studies have pointed to the success of Canada ’ s concentrated banking system compared to the United States .
However , concentration also poses systemic risks , as seen during the Global Financial Crisis and the recent failures of
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