Study finds no household harm from banking consolidation

A new Federal Reserve study challenges the view that banking consolidation harms household borrowers.

Using confidential micro-level data, the research analyzes 44 million mortgage contracts and credit records spanning 5,000 bank mergers over nearly three decades.

The findings indicate no changes to mortgage rates, approval rates, or delinquency rates following consolidation.

Despite a significant reduction in the number of active banks nationally since 1985, local mortgage markets demonstrate remarkable competitiveness, with an average of over 100 active lenders in each county every post-merger quarter.

This stability in key mortgage metrics directly contradicts concerns that bank mergers systematically erode competition and create market power detrimental to consumers.

The study reveals significant merger selection motives, challenging simple market-power narratives.

Large acquiring banks often target community banks characterized by relationship-intensive, portfolio-lending business models, seeking access to established customer bases.

Conversely, community banks appear to merge with peers primarily to gain scale and enhance their competitive standing.

Despite extensive national consolidation, the typical county maintains over 130 active lenders, and market shares remain highly fragmented.

The analysis employs a stacked panel event study difference-in-differences design, comparing acquiring and target banks to control institutions, to distinguish true strategic responses from mechanical portfolio composition effects.