Monopoly-Creating Bank Consolidation? The Merger of Fleet and Bankboston

37 Pages Posted: 20 Jun 2005 Last revised: 9 Jul 2022

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Thanavut Pornrojnangkool

World Bank

Date Written: May 2005

Abstract

The merger of Fleet and BankBoston in September 1999 resulted in a regional New England lending market in which only one large, universal bank remained. We explore the extent to which that merger resulted in monopoly rents for the combined entity in some niches within the regional loan market. For small- and medium-sized middle-market borrowers, prior to the merger, Fleet and BankBoston charged unusually low loan interest rates, reflecting their ability to realize economies of scope and scale. After the merger, those cost savings were no longer passed on to medium-sized middle-market borrowers, which resulted in an increase in the average interest rate credit spreads to those borrowers of roughly one percent. Small-sized middle-market borrowers (which continued to enjoy the advantage of loan market competition from remaining small banks) maintained their low spreads. Our results suggest that it may be desirable for regulators to consider the concentration in lending markets in addition to deposit markets when evaluating mergers and structuring appropriate divestiture requirements.

Suggested Citation

Calomiris, Charles W. and Pornrojnangkool, Thanavut, Monopoly-Creating Bank Consolidation? The Merger of Fleet and Bankboston (May 2005). NBER Working Paper No. w11351, Available at SSRN: https://ssrn.com/abstract=727131

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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Thanavut Pornrojnangkool

World Bank ( email )

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United States

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