Often times bank mergers take place because there are too many banks, too many branches, and too many competitors. A merger is when two companies combine to form a larger more powerful firm. Many economist have opposing view points on the role that mergers play in the economy. In the past five years many mergers have occurred in the banking industry for example; Chase Manhattan and Chemical Bank, BankAmerica and NationsBank, and Banc One and First Chicago. These are only a few of the hundreds of mergers that have taken place in the past five years. Although consolidation can make the banking industry more productive, merging and reducing expenses give only a short lived boost to earnings. In the long run we will end up with bigger banks facing the same problem, fewer and fewer people who need them. Like any other industry in today’s society the banking industry is changing. Some economist even say its becoming extinct. Bank rivals are pressing from all directions. Commercial Loans that was once an exclusive banking industry has been invaded by companies such as GE Capital and Merrill Lynch. “Over the past five years loan activity at GE Capital already one of the countries biggest lenders has climbed 11%, while the banking industry loan growth has crept along at a 3% annual rate. Or look at Merrill Lynch. Over the past year, it has originated $4.2 billion in commercial loans, equal to roughly one third of KeyCorp’s total commercial loan portfolio at the end of 1994.”1 Even the consumer-loan franchise is being captured. Credit cards for instance, have been a long time profitable business for banks. That industry as well has been taken over by companies such as First USA. “Since 1991, First USA, a credit card company no more than ten years old , has prospected furiously, raising its card receivables 650%, to $15 billion, during a period when growth in overall card debt grew just 36%. Since 1991, NationsBank, despi…
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