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December 1, 1980 ever, it is quite county clear X are indeed tive force million approach of definition occurs are transmitted third that and that bank. bank bank conditions between through to identify for ex- ket areas; these bank B ployment with bank C. Aldirectly competitive the competitive of bank B. Such a situation in metropolitan advertising, directly that reaction is quite common communities are linked to each other through large banks seek and serve customers both within issue of delineation 1963. While nature of defining court in which the Court "the purchaser of banking behind and-demand markets. in market, the seller operates, and to which can practicably turn for sup- was an u nderlvi ng the development approach market individual markets judgmental area is an area Inclusion boundaries the that a market for locally limited causes the a geographic pi ies. ,,4 Th is statement force addressed of to delineating of demand banking areas the of a supplyconsiderations services generally to extend area banking beyond serviced by networks, markets generally to be included Many including of the economic area, and limited economic on traveling the Bank, likely to be familiar time the eco- them, or the inter- of media shopping from one customers sources for available to them.7 Demand occasion, services a banks in one community base are more likely to prices and communities the for The greater shorter between two the retail the size distance provide the banks in the other decline these provided in bank and merger applications. information is obtained residents of to and city a household pub- banks, chambers or regional survey munities planners. On in an area may be necessary to ascertain the relevant market area. The of the banks probability when there for on of the liberalization increased the hours. competition thrift December to or risk a offer employ- has increased geographic scope institutions interest-rate deposits at associations ceilings on and banks, and savings will factors, competitive and Federal Reserve Bank of Cleveland Research Department P.O. Box 6387 Cleveland,OH 44101 Address correction BULK RATE U.S. Postage Paid Cleveland,OH Permit No. 385 requested After to and savings and loan be phased out. the trend banking continue be- are permitted accounts gradually the Control banks.8 time in- Insti- payment of these to over competition and fi- in Depository 31, 1980, thrifts third-party branch among the tween How Should Banking Markets Be Delineated? and the extension and Monetary and ISSN 0428-1276 have of Advertising institutions services. ECONOMIC COMMENTARY of branch- establishment in new locations of banking Deregulation toward markets is even to accelerate in the future. experience community. to the other community's of en- tutions forces occurring is higher of commuting basis and households sources have number Act of 1980 will intensify in the other a regular and and competitive this mobile is ex- to is a larger percentage shopping percentage of react have the ban ks in at least one of the comwould Customers In addition, similar for areas years. of the employed community, market tensity services one area commutes another expanded. increasingly and market customers. easier access to a greater Because 20 percent usually have banking likely If approximately defining past few decades, promoted more 7. such as com- em- conveniently community should should is to to charge factors and shopping when areas for locally limited become for emphasis nancial in business. actions from coverage, in a con- or areas for employment media generally demand factors, muting of communities, the probabi Iity that data are generally as supply on demand alternative additional comparable be placed offices Such commuting with other and institution have and be taken into consideration, goods and community banking and supply in a given area. While ser- ing laws, employment would both services view in- areas. If there for of banking growth, of its office to residence, suggests that Supply-side factor or shopping analysis Economic community of a financial commuting ment 5. in another important the proximity other, generally geographic resi- areas, for purchasing choice tensive population in An ployment, relative distance services. sumer's commu- and located requires joyed of economic two of one community viable alternatives they are at these retailers. between markets task that In the with the range of prices amount banking and difficult exposed community, available exists stitutions of a par- are significantly communities services. and the greater when households community integration market the commonality other financial difference their goods and services in the me- to the media of another dents includ- are quite active in When a significant activity. two growth Smaller depend ticular limited the absolute between and of commerce, 374, U.S. 321,1963. and the affect communities, density, 6. National of the hub com- between the time acquisition v. Philadelphia advertising sufficiently within factors interaction traveling and with factor that can help institutions, Delineating vice areas information ing financial a community are of economic is another dia. Consequently, inter- Comments is a complex in two communities. The transmittal via advertising of economic be must be made as to whether integrated coverage. between for em- political, contain economically vening dependence degree of mar- for locally communities sizes the and commodities surrounding munity to link two areas. Retail establishments, mode and extent natural, related development in- the banks. States vari- must commuting lished sources and local firms, 4. United demand that is the hub of the area's economic nities, recognizing indicated customers nomic Supply and Demand tend to legal barriers.6 boundaries. the central city and the suburbs. The U.S. Supreme of possible A determination in- area also tend to be directly Prices, Concluding density and business the economic transportation existence population and residential the boundaries and shopping, The the intervening in a com- communities include Geographic areas, where banks operating in the suburban might influence linked. of patterns In addition, be and de- be examined. banks competing area.5 ables that factors and branching among mon market action taken by bank A would be transmitted to bank C through hours, would individual delineation supply must analyzed with significant mand of in the other teraction A does not compete C, any areas, be similar a areas are important competitive Assume, bank A competes service market terms, service-area when bank B competes though with the indirectly or intervening ample, X banks deposits of $20 that could lead to an inappropriate market forces banks competi- of county example Although in Y, which is equivalent Y's bank. county to the total deposits Another banks a significant are generating from the Y. The county in county collectively that 8. For a discussion Paul R. Watro, Institutions and Commentary, of nonbank competition, "Competition Banks Federal in between Ohio," see Thrift Economic Reserve Bank of Cleve- land, July 14, 1980. a larger are subscribing daily newspaper. NOTE: No issues of the Economic were published in November 1980. Commentary Address Change o Correct o Remove as shown from mailing list Please send mai ling label to the Research Department, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, OH 44101. guidelines are based on the presumption market How Should Banking Markets Be Delineated? structure formance fashion. by Paul R. Watro to related influence to the competitors The Bank Company Merger Act require Act and Bank Holding The market regulatory and deposits, agencies assess the competitive impact merger of a bank or acquisition holding tion company. that would substantially section Any tend these banking portant factor tition. Yet, area, in the Reserve Henry market Federal of Applicant's reflecting Commercial banks the markets provide geographic vary from and regulators, concerned impact of a merger limited customers, After market are the would locally Iimited vant market those boundaries service of to service. Dissenting Order Statement Denying Bank Old State Michigan, Governor Acquisition Corporation, The of Ionia, Bank Federal by Wallich, is highly more) or to acquire Fremont, Fremont, Reserve Bulletin, October 1979, pp, 867-70. Paul R. Watro is an economic analyst, Federal Reserve Bank of Cleveland. The author opinions and Reserve Governors not Bank stated herein necessarily of Cleveland are those or of in the and Departthat, if would be likely challenqes.f These depend on whether (the the market four largest share of 75 percent concentrated (the those of of the the Federal the of the Federal Reserve System. Board of the or share to a change service Department firms may challenge approximating percentages of the market the mergers following area: Highly Less highly concentrated concentrated Acquiring Acquired Acquiring Acquired firm firm firm firm 4% 10% :>15% :>4% :>2% :>1% 5% 10% 15% 20% :>25% :>5% :>4% :>3% :>2% :>1% all economic limit area includes be same relatively another free prices that true a market area. a market area prices are The theoretical assumes that homogeneous product. sellers many provide services, however, differentiation that individual sellers types to occur. sellers are channel paying, facilities, cashing among as deposit, In addition, with varies such payroll drive-in machines. or trans- checks banks. variations hand, or These in service area. banks such as types terns, and banking than price of products funds in tors, price things tend the market interest-rate ceilings in defined markets tomers. areas, competitive however, to the an area must regulators demand factors between two example, an appeals court's opinion The be based on that cating that lapping market areas. each service other's fac- Deposit branching pat- tially denied of mergers In a recent upheld was banking 3. Southwest McComb services. ation, Mississippi v. Federal Deposit U.S. Mississippi, In a verbal tr.~rlitionally have been area in which banks District Fifth upheld Circuit the consolidation. Court, Jackson lower court's but institutions to changes in services or prices. force in a market area or potential and businesses threat would that is the households substitute or different in The lower-priced, quality services at another. The prospect area too of appeared to derived from Federal ini- Bank of District August 1979. 1980, the U.S. in New Orleans permitting the business inducements indi- Corpor- ruling switch a lower Southern of Appeals at the institution, and would underlying are lower- Insurance Court who market and in August fails to take customers banking the In addi- for consolidation; opinion are of supply. approach cus- services (FDIC) Division, of existing institutions potential gen- A service defined The Bank areas. gain and fear of loss of a meaningful they service- banking of business proposed response the markets at one bank for higher-priced, did not have over- areas. service-area could actual the source higher-quality, may be more useful market the offered study Corporation the in consolidation and that service with using a portion whom not presently areas in Mississippi, amount Cur- of the concurred with convenient who supply-and- cases. banks Insurance present Although effects decision areas a minimal are market a demand-deposit the two of the areas are sti II used to court's for the competition broadly.3 tomers account that the relevant assessing System only into court reports of Governors is that geographic area includes marketing tion, banks adverse of the are larger than service to be a true a proposed small erally most in some Comptroller difficulty area approach but merely have utilized involving F D IC's assessment. in a proposed in defining acquisitions linkage include assess the anti competitive decision Reserve to compete and the consolidaCompetitive Board Federal The or service. service the and In order product the past decade, rency most forces generally by the of cus- do not represent sense, or acquisition. considered area, on competition. submitted area. involved would effect were are indeed according banks they group economic of the When areas, vary for a particular for a bank institutions demand-and-supply and tion which in the that market, have had a substantially existing service the banks a bank's of its deposits. these two their in the same market Service merger market for a common and markets the define from overlapping competing or acquisition in the same of generally Therefore, is direct, prices in identifying as the geographic majority 80 percent have effort merger as an area are competing of Banking area banks uniform Service Area To the degree vast Regulators generates only or and product the of non-price of services, limited to in all its different variables other into produce hours, of con- is the same the homogeneity areas for locally competing to equal ize would Moreover, within a If the organizations Therefore, supply in more than rises in one market, laws often area. Some tending markets. areas. and usury prices do not compete additional among of similar a single market neces- successful direct the rate of return market in a proposed derive areas accounts banks in the same market among until one concept When specialization tend or products identical homogeneous checking area, thereby equal, with sarily one market being reacts it is not a compli- services, organizations loans interaction are interrelated, banks, denote sumer in a market or services among to sellers same be may explain prices by the other. of the ac- involved Con- in pricing supplied and in such that if one to changes buyers are area a checking deposits banking to are considered market While protection, necessarily sellers supplies. of to and loca- examples in complimentary time Office quality, On the other costs, a geographic for institutions of a product While area turn industry. or inconvenience, to specialization common among teller has are seem automatic involved business. are in fact com- competition. bill may vary a common hours, services charges all alternative quickly quality banking units that of a good and can two tion, differences Transaction a market sequently, banking action react competition, automatic of traditionally in the as a geographic or quality supplier. buyers both prices for regulation may those service mon making normally in the from individual differentiation overdraft from competing price differ the services and product product standpoints. as transportation whom of buyers. count mar- that approach, in price that group non-price is preferable area is defined by any sellers mentary and examines indicates and practical area containing of the four largest firms is less than 75 percent). The Justice service-area A market such indicating mergers concentrated less highly relein the Justice guidelines have a combined for To assist the court 2. These guidelines the Independent Michigan, of services by the regulators, for whether competition or areas. established between 1. Market Theory and exercise decisions. approach in the merger the more in delineating analysis theoretical banking acquisitions firms The be determined evaluation, has areas. it must involved may markets basic approaches to eliminate area competitive of banking line and the geographic competitors merger ket larger the competitors, among limited Economic Commentary discusses This the two and to other the their Because Proceeding a bank, and output supply-and-demand banks existing of pricing the theory on locally area. institution of a their is directly size relative by per- the ability of reasoning, differentiating predictable market market held the in terms competitive as consumers line share discretion that bank's bank and the in the this market have been or acquisition the product whether area of the such and, in scope. however, with are identified, candidates a variety loans small businesses. approved but corporate is national international primarily recognized satisfactory.,,1 large The courts ten-county relationships, is entirely for for example, instances, ment Each of them, and competitive and of the of has been presented has some merit, services, market statement consideration. no one of them their task to of a geographic delineations with the exception economic of compe- "In this case an array of alter- for the Board's market, an im- a very difficult C. Wallich by area in many a geo- is usually by a recent Board: native of assessment the extent Governor in any be denied delineation market as indicated competition must it is often determine or acquisi- a monopoly The graphic or a bank to lessen country agencies. of a proposed merger or create of the to affect It is presumed bank along would in a systematic that Banks provide strong in a market area. may operate area without having Consider the has three banks lion, in a common county market service areas. example: with $75 million, tively; competitive overlapping following county X of $100 mil- deposits $25 million, and of amount respec- Y has one bank with deposits of $20 million. Each bank derives 80 percent of its deposits from in which is located. banks in county deposits riving from approach, each X draws county business banking the county In addition, market? 10 percent Y. Are the banks in two counties Based the answer of the on the is obviously it three of its de- in the same service-area no! How- guidelines are based on the presumption market How Should Banking Markets Be Delineated? structure formance fashion. by Paul R. Watro to related influence to the competitors The Bank Company Merger Act require Act and Bank Holding The market regulatory and deposits, agencies assess the competitive impact merger of a bank or acquisition holding tion company. that would substantially section Any tend these banking portant factor tition. Yet, area, in the Reserve Henry market Federal of Applicant's reflecting Commercial banks the markets provide geographic vary from and regulators, concerned impact of a merger limited customers, After market are the would locally Iimited vant market those boundaries service of to service. Dissenting Order Statement Denying Bank Old State Michigan, Governor Acquisition Corporation, The of Ionia, Bank Federal by Wallich, is highly more) or to acquire Fremont, Fremont, Reserve Bulletin, October 1979, pp, 867-70. Paul R. Watro is an economic analyst, Federal Reserve Bank of Cleveland. The author opinions and Reserve Governors not Bank stated herein necessarily of Cleveland are those or of in the and Departthat, if would be likely challenqes.f These depend on whether (the the market four largest share of 75 percent concentrated (the those of of the the Federal the of the Federal Reserve System. Board of the or share to a change service Department firms may challenge approximating percentages of the market the mergers following area: Highly Less highly concentrated concentrated Acquiring Acquired Acquiring Acquired firm firm firm firm 4% 10% :>15% :>4% :>2% :>1% 5% 10% 15% 20% :>25% :>5% :>4% :>3% :>2% :>1% all economic limit area includes be same relatively another free prices that true a market area. a market area prices are The theoretical assumes that homogeneous product. sellers many provide services, however, differentiation that individual sellers types to occur. sellers are channel paying, facilities, cashing among as deposit, In addition, with varies such payroll drive-in machines. or trans- checks banks. variations hand, or These in service area. banks such as types terns, and banking than price of products funds in tors, price things tend the market interest-rate ceilings in defined markets tomers. areas, competitive however, to the an area must regulators demand factors between two example, an appeals court's opinion The be based on that cating that lapping market areas. each service other's fac- Deposit branching pat- tially denied of mergers In a recent upheld was banking 3. Southwest McComb services. ation, Mississippi v. Federal Deposit U.S. Mississippi, In a verbal tr.~rlitionally have been area in which banks District Fifth upheld Circuit the consolidation. Court, Jackson lower court's but institutions to changes in services or prices. force in a market area or potential and businesses threat would that is the households substitute or different in The lower-priced, quality services at another. The prospect area too of appeared to derived from Federal ini- Bank of District August 1979. 1980, the U.S. in New Orleans permitting the business inducements indi- Corpor- ruling switch a lower Southern of Appeals at the institution, and would underlying are lower- Insurance Court who market and in August fails to take customers banking the In addi- for consolidation; opinion are of supply. approach cus- services (FDIC) Division, of existing institutions potential gen- A service defined The Bank areas. gain and fear of loss of a meaningful they service- banking of business proposed response the markets at one bank for higher-priced, did not have over- areas. service-area could actual the source higher-quality, may be more useful market the offered study Corporation the in consolidation and that service with using a portion whom not presently areas in Mississippi, amount Cur- of the concurred with convenient who supply-and- cases. banks Insurance present Although effects decision areas a minimal are market a demand-deposit the two of the areas are sti II used to court's for the competition broadly.3 tomers account that the relevant assessing System only into court reports of Governors is that geographic area includes marketing tion, banks adverse of the are larger than service to be a true a proposed small erally most in some Comptroller difficulty area approach but merely have utilized involving F D IC's assessment. in a proposed in defining acquisitions linkage include assess the anti competitive decision Reserve to compete and the consolidaCompetitive Board Federal The or service. service the and In order product the past decade, rency most forces generally by the of cus- do not represent sense, or acquisition. considered area, on competition. submitted area. involved would effect were are indeed according banks they group economic of the When areas, vary for a particular for a bank institutions demand-and-supply and tion which in the that market, have had a substantially existing service the banks a bank's of its deposits. these two their in the same market Service merger market for a common and markets the define from overlapping competing or acquisition in the same of generally Therefore, is direct, prices in identifying as the geographic majority 80 percent have effort merger as an area are competing of Banking area banks uniform Service Area To the degree vast Regulators generates only or and product the of non-price of services, limited to in all its different variables other into produce hours, of con- is the same the homogeneity areas for locally competing to equal ize would Moreover, within a If the organizations Therefore, supply in more than rises in one market, laws often area. Some tending markets. areas. and usury prices do not compete additional among of similar a single market neces- successful direct the rate of return market in a proposed derive areas accounts banks in the same market among until one concept When specialization tend or products identical homogeneous checking area, thereby equal, with sarily one market being reacts it is not a compli- services, organizations loans interaction are interrelated, banks, denote sumer in a market or services among to sellers same be may explain prices by the other. of the ac- involved Con- in pricing supplied and in such that if one to changes buyers are area a checking deposits banking to are considered market While protection, necessarily sellers supplies. of to and loca- examples in complimentary time Office quality, On the other costs, a geographic for institutions of a product While area turn industry. or inconvenience, to specialization common among teller has are seem automatic involved business. are in fact com- competition. bill may vary a common hours, services charges all alternative quickly quality banking units that of a good and can two tion, differences Transaction a market sequently, banking action react competition, automatic of traditionally in the as a geographic or quality supplier. buyers both prices for regulation may those service mon making normally in the from individual differentiation overdraft from competing price differ the services and product product standpoints. as transportation whom of buyers. count mar- that approach, in price that group non-price is preferable area is defined by any sellers mentary and examines indicates and practical area containing of the four largest firms is less than 75 percent). The Justice service-area A market such indicating mergers concentrated less highly relein the Justice guidelines have a combined for To assist the court 2. These guidelines the Independent Michigan, of services by the regulators, for whether competition or areas. established between 1. Market Theory and exercise decisions. approach in the merger the more in delineating analysis theoretical banking acquisitions firms The be determined evaluation, has areas. it must involved may markets basic approaches to eliminate area competitive of banking line and the geographic competitors merger ket larger the competitors, among limited Economic Commentary discusses This the two and to other the their Because Proceeding a bank, and output supply-and-demand banks existing of pricing the theory on locally area. institution of a their is directly size relative by per- the ability of reasoning, differentiating predictable market market held the in terms competitive as consumers line share discretion that bank's bank and the in the this market have been or acquisition the product whether area of the such and, in scope. however, with are identified, candidates a variety loans small businesses. approved but corporate is national international primarily recognized satisfactory.,,1 large The courts ten-county relationships, is entirely for for example, instances, ment Each of them, and competitive and of the of has been presented has some merit, services, market statement consideration. no one of them their task to of a geographic delineations with the exception economic of compe- "In this case an array of alter- for the Board's market, an im- a very difficult C. Wallich by area in many a geo- is usually by a recent Board: native of assessment the extent Governor in any be denied delineation market as indicated competition must it is often determine or acquisi- a monopoly The graphic or a bank to lessen country agencies. of a proposed merger or create of the to affect It is presumed bank along would in a systematic that Banks provide strong in a market area. may operate area without having Consider the has three banks lion, in a common county market service areas. example: with $75 million, tively; competitive overlapping following county X of $100 mil- deposits $25 million, and of amount respec- Y has one bank with deposits of $20 million. Each bank derives 80 percent of its deposits from in which is located. banks in county deposits riving from approach, each X draws county business banking the county In addition, market? 10 percent Y. Are the banks in two counties Based the answer of the on the is obviously it three of its de- in the same service-area no! How- guidelines are based on the presumption market How Should Banking Markets Be Delineated? structure formance fashion. by Paul R. Watro to related influence to the competitors The Bank Company Merger Act require Act and Bank Holding The market regulatory and deposits, agencies assess the competitive impact merger of a bank or acquisition holding tion company. that would substantially section Any tend these banking portant factor tition. Yet, area, in the Reserve Henry market Federal of Applicant's reflecting Commercial banks the markets provide geographic vary from and regulators, concerned impact of a merger limited customers, After market are the would locally Iimited vant market those boundaries service of to service. Dissenting Order Statement Denying Bank Old State Michigan, Governor Acquisition Corporation, The of Ionia, Bank Federal by Wallich, is highly more) or to acquire Fremont, Fremont, Reserve Bulletin, October 1979, pp, 867-70. Paul R. Watro is an economic analyst, Federal Reserve Bank of Cleveland. The author opinions and Reserve Governors not Bank stated herein necessarily of Cleveland are those or of in the and Departthat, if would be likely challenqes.f These depend on whether (the the market four largest share of 75 percent concentrated (the those of of the the Federal the of the Federal Reserve System. Board of the or share to a change service Department firms may challenge approximating percentages of the market the mergers following area: Highly Less highly concentrated concentrated Acquiring Acquired Acquiring Acquired firm firm firm firm 4% 10% :>15% :>4% :>2% :>1% 5% 10% 15% 20% :>25% :>5% :>4% :>3% :>2% :>1% all economic limit area includes be same relatively another free prices that true a market area. a market area prices are The theoretical assumes that homogeneous product. sellers many provide services, however, differentiation that individual sellers types to occur. sellers are channel paying, facilities, cashing among as deposit, In addition, with varies such payroll drive-in machines. or trans- checks banks. variations hand, or These in service area. banks such as types terns, and banking than price of products funds in tors, price things tend the market interest-rate ceilings in defined markets tomers. areas, competitive however, to the an area must regulators demand factors between two example, an appeals court's opinion The be based on that cating that lapping market areas. each service other's fac- Deposit branching pat- tially denied of mergers In a recent upheld was banking 3. Southwest McComb services. ation, Mississippi v. Federal Deposit U.S. Mississippi, In a verbal tr.~rlitionally have been area in which banks District Fifth upheld Circuit the consolidation. Court, Jackson lower court's but institutions to changes in services or prices. force in a market area or potential and businesses threat would that is the households substitute or different in The lower-priced, quality services at another. The prospect area too of appeared to derived from Federal ini- Bank of District August 1979. 1980, the U.S. in New Orleans permitting the business inducements indi- Corpor- ruling switch a lower Southern of Appeals at the institution, and would underlying are lower- Insurance Court who market and in August fails to take customers banking the In addi- for consolidation; opinion are of supply. approach cus- services (FDIC) Division, of existing institutions potential gen- A service defined The Bank areas. gain and fear of loss of a meaningful they service- banking of business proposed response the markets at one bank for higher-priced, did not have over- areas. service-area could actual the source higher-quality, may be more useful market the offered study Corporation the in consolidation and that service with using a portion whom not presently areas in Mississippi, amount Cur- of the concurred with convenient who supply-and- cases. banks Insurance present Although effects decision areas a minimal are market a demand-deposit the two of the areas are sti II used to court's for the competition broadly.3 tomers account that the relevant assessing System only into court reports of Governors is that geographic area includes marketing tion, banks adverse of the are larger than service to be a true a proposed small erally most in some Comptroller difficulty area approach but merely have utilized involving F D IC's assessment. in a proposed in defining acquisitions linkage include assess the anti competitive decision Reserve to compete and the consolidaCompetitive Board Federal The or service. service the and In order product the past decade, rency most forces generally by the of cus- do not represent sense, or acquisition. considered area, on competition. submitted area. involved would effect were are indeed according banks they group economic of the When areas, vary for a particular for a bank institutions demand-and-supply and tion which in the that market, have had a substantially existing service the banks a bank's of its deposits. these two their in the same market Service merger market for a common and markets the define from overlapping competing or acquisition in the same of generally Therefore, is direct, prices in identifying as the geographic majority 80 percent have effort merger as an area are competing of Banking area banks uniform Service Area To the degree vast Regulators generates only or and product the of non-price of services, limited to in all its different variables other into produce hours, of con- is the same the homogeneity areas for locally competing to equal ize would Moreover, within a If the organizations Therefore, supply in more than rises in one market, laws often area. Some tending markets. areas. and usury prices do not compete additional among of similar a single market neces- successful direct the rate of return market in a proposed derive areas accounts banks in the same market among until one concept When specialization tend or products identical homogeneous checking area, thereby equal, with sarily one market being reacts it is not a compli- services, organizations loans interaction are interrelated, banks, denote sumer in a market or services among to sellers same be may explain prices by the other. of the ac- involved Con- in pricing supplied and in such that if one to changes buyers are area a checking deposits banking to are considered market While protection, necessarily sellers supplies. of to and loca- examples in complimentary time Office quality, On the other costs, a geographic for institutions of a product While area turn industry. or inconvenience, to specialization common among teller has are seem automatic involved business. are in fact com- competition. bill may vary a common hours, services charges all alternative quickly quality banking units that of a good and can two tion, differences Transaction a market sequently, banking action react competition, automatic of traditionally in the as a geographic or quality supplier. buyers both prices for regulation may those service mon making normally in the from individual differentiation overdraft from competing price differ the services and product product standpoints. as transportation whom of buyers. count mar- that approach, in price that group non-price is preferable area is defined by any sellers mentary and examines indicates and practical area containing of the four largest firms is less than 75 percent). The Justice service-area A market such indicating mergers concentrated less highly relein the Justice guidelines have a combined for To assist the court 2. These guidelines the Independent Michigan, of services by the regulators, for whether competition or areas. established between 1. Market Theory and exercise decisions. approach in the merger the more in delineating analysis theoretical banking acquisitions firms The be determined evaluation, has areas. it must involved may markets basic approaches to eliminate area competitive of banking line and the geographic competitors merger ket larger the competitors, among limited Economic Commentary discusses This the two and to other the their Because Proceeding a bank, and output supply-and-demand banks existing of pricing the theory on locally area. institution of a their is directly size relative by per- the ability of reasoning, differentiating predictable market market held the in terms competitive as consumers line share discretion that bank's bank and the in the this market have been or acquisition the product whether area of the such and, in scope. however, with are identified, candidates a variety loans small businesses. approved but corporate is national international primarily recognized satisfactory.,,1 large The courts ten-county relationships, is entirely for for example, instances, ment Each of them, and competitive and of the of has been presented has some merit, services, market statement consideration. no one of them their task to of a geographic delineations with the exception economic of compe- "In this case an array of alter- for the Board's market, an im- a very difficult C. Wallich by area in many a geo- is usually by a recent Board: native of assessment the extent Governor in any be denied delineation market as indicated competition must it is often determine or acquisi- a monopoly The graphic or a bank to lessen country agencies. of a proposed merger or create of the to affect It is presumed bank along would in a systematic that Banks provide strong in a market area. may operate area without having Consider the has three banks lion, in a common county market service areas. example: with $75 million, tively; competitive overlapping following county X of $100 mil- deposits $25 million, and of amount respec- Y has one bank with deposits of $20 million. Each bank derives 80 percent of its deposits from in which is located. banks in county deposits riving from approach, each X draws county business banking the county In addition, market? 10 percent Y. Are the banks in two counties Based the answer of the on the is obviously it three of its de- in the same service-area no! How- December 1, 1980 ever, it is quite county clear X are indeed tive force million approach of definition occurs are transmitted third that and that bank. bank bank conditions between through to identify for ex- ket areas; these bank B ployment with bank C. Aldirectly competitive the competitive of bank B. Such a situation in metropolitan advertising, directly that reaction is quite common communities are linked to each other through large banks seek and serve customers both within issue of delineation 1963. While nature of defining court in which the Court "the purchaser of banking behind and-demand markets. in market, the seller operates, and to which can practicably turn for sup- was an u nderlvi ng the development approach market individual markets judgmental area is an area Inclusion boundaries the that a market for locally limited causes the a geographic pi ies. ,,4 Th is statement force addressed of to delineating of demand banking areas the of a supplyconsiderations services generally to extend area banking beyond serviced by networks, markets generally to be included Many including of the economic area, and limited economic on traveling the Bank, likely to be familiar time the eco- them, or the inter- of media shopping from one customers sources for available to them.7 Demand occasion, services a banks in one community base are more likely to prices and communities the for The greater shorter between two the retail the size distance provide the banks in the other decline these provided in bank and merger applications. information is obtained residents of to and city a household pub- banks, chambers or regional survey munities planners. On in an area may be necessary to ascertain the relevant market area. The of the banks probability when there for on of the liberalization increased the hours. competition thrift December to or risk a offer employ- has increased geographic scope institutions interest-rate deposits at associations ceilings on and banks, and savings will factors, competitive and Federal Reserve Bank of Cleveland Research Department P.O. Box 6387 Cleveland,OH 44101 Address correction BULK RATE U.S. Postage Paid Cleveland,OH Permit No. 385 requested After to and savings and loan be phased out. the trend banking continue be- are permitted accounts gradually the Control banks.8 time in- Insti- payment of these to over competition and fi- in Depository 31, 1980, thrifts third-party branch among the tween How Should Banking Markets Be Delineated? and the extension and Monetary and ISSN 0428-1276 have of Advertising institutions services. ECONOMIC COMMENTARY of branch- establishment in new locations of banking Deregulation toward markets is even to accelerate in the future. experience community. to the other community's of en- tutions forces occurring is higher of commuting basis and households sources have number Act of 1980 will intensify in the other a regular and and competitive this mobile is ex- to is a larger percentage shopping percentage of react have the ban ks in at least one of the comwould Customers In addition, similar for areas years. of the employed community, market tensity services one area commutes another expanded. increasingly and market customers. easier access to a greater Because 20 percent usually have banking likely If approximately defining past few decades, promoted more 7. such as com- em- conveniently community should should is to to charge factors and shopping when areas for locally limited become for emphasis nancial in business. actions from coverage, in a con- or areas for employment media generally demand factors, muting of communities, the probabi Iity that data are generally as supply on demand alternative additional comparable be placed offices Such commuting with other and institution have and be taken into consideration, goods and community banking and supply in a given area. While ser- ing laws, employment would both services view in- areas. If there for of banking growth, of its office to residence, suggests that Supply-side factor or shopping analysis Economic community of a financial commuting ment 5. in another important the proximity other, generally geographic resi- areas, for purchasing choice tensive population in An ployment, relative distance services. sumer's commu- and located requires joyed of economic two of one community viable alternatives they are at these retailers. between markets task that In the with the range of prices amount banking and difficult exposed community, available exists stitutions of a par- are significantly communities services. and the greater when households community integration market the commonality other financial difference their goods and services in the me- to the media of another dents includ- are quite active in When a significant activity. two growth Smaller depend ticular limited the absolute between and of commerce, 374, U.S. 321,1963. and the affect communities, density, 6. National of the hub com- between the time acquisition v. Philadelphia advertising sufficiently within factors interaction traveling and with factor that can help institutions, Delineating vice areas information ing financial a community are of economic is another dia. Consequently, inter- Comments is a complex in two communities. The transmittal via advertising of economic be must be made as to whether integrated coverage. between for em- political, contain economically vening dependence degree of mar- for locally communities sizes the and commodities surrounding munity to link two areas. Retail establishments, mode and extent natural, related development in- the banks. States vari- must commuting lished sources and local firms, 4. United demand that is the hub of the area's economic nities, recognizing indicated customers nomic Supply and Demand tend to legal barriers.6 boundaries. the central city and the suburbs. The U.S. Supreme of possible A determination in- area also tend to be directly Prices, Concluding density and business the economic transportation existence population and residential the boundaries and shopping, The the intervening in a com- communities include Geographic areas, where banks operating in the suburban might influence linked. of patterns In addition, be and de- be examined. banks competing area.5 ables that factors and branching among mon market action taken by bank A would be transmitted to bank C through hours, would individual delineation supply must analyzed with significant mand of in the other teraction A does not compete C, any areas, be similar a areas are important competitive Assume, bank A competes service market terms, service-area when bank B competes though with the indirectly or intervening ample, X banks deposits of $20 that could lead to an inappropriate market forces banks competi- of county example Although in Y, which is equivalent Y's bank. county to the total deposits Another banks a significant are generating from the Y. The county in county collectively that 8. For a discussion Paul R. Watro, Institutions and Commentary, of nonbank competition, "Competition Banks Federal in between Ohio," see Thrift Economic Reserve Bank of Cleve- land, July 14, 1980. a larger are subscribing daily newspaper. NOTE: No issues of the Economic were published in November 1980. Commentary Address Change o Correct o Remove as shown from mailing list Please send mai ling label to the Research Department, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, OH 44101. December 1, 1980 ever, it is quite county clear X are indeed tive force million approach of definition occurs are transmitted third that and that bank. bank bank conditions between through to identify for ex- ket areas; these bank B ployment with bank C. Aldirectly competitive the competitive of bank B. Such a situation in metropolitan advertising, directly that reaction is quite common communities are linked to each other through large banks seek and serve customers both within issue of delineation 1963. While nature of defining court in which the Court "the purchaser of banking behind and-demand markets. in market, the seller operates, and to which can practicably turn for sup- was an u nderlvi ng the development approach market individual markets judgmental area is an area Inclusion boundaries the that a market for locally limited causes the a geographic pi ies. ,,4 Th is statement force addressed of to delineating of demand banking areas the of a supplyconsiderations services generally to extend area banking beyond serviced by networks, markets generally to be included Many including of the economic area, and limited economic on traveling the Bank, likely to be familiar time the eco- them, or the inter- of media shopping from one customers sources for available to them.7 Demand occasion, services a banks in one community base are more likely to prices and communities the for The greater shorter between two the retail the size distance provide the banks in the other decline these provided in bank and merger applications. information is obtained residents of to and city a household pub- banks, chambers or regional survey munities planners. On in an area may be necessary to ascertain the relevant market area. The of the banks probability when there for on of the liberalization increased the hours. competition thrift December to or risk a offer employ- has increased geographic scope institutions interest-rate deposits at associations ceilings on and banks, and savings will factors, competitive and Federal Reserve Bank of Cleveland Research Department P.O. Box 6387 Cleveland,OH 44101 Address correction BULK RATE U.S. Postage Paid Cleveland,OH Permit No. 385 requested After to and savings and loan be phased out. the trend banking continue be- are permitted accounts gradually the Control banks.8 time in- Insti- payment of these to over competition and fi- in Depository 31, 1980, thrifts third-party branch among the tween How Should Banking Markets Be Delineated? and the extension and Monetary and ISSN 0428-1276 have of Advertising institutions services. ECONOMIC COMMENTARY of branch- establishment in new locations of banking Deregulation toward markets is even to accelerate in the future. experience community. to the other community's of en- tutions forces occurring is higher of commuting basis and households sources have number Act of 1980 will intensify in the other a regular and and competitive this mobile is ex- to is a larger percentage shopping percentage of react have the ban ks in at least one of the comwould Customers In addition, similar for areas years. of the employed community, market tensity services one area commutes another expanded. increasingly and market customers. easier access to a greater Because 20 percent usually have banking likely If approximately defining past few decades, promoted more 7. such as com- em- conveniently community should should is to to charge factors and shopping when areas for locally limited become for emphasis nancial in business. actions from coverage, in a con- or areas for employment media generally demand factors, muting of communities, the probabi Iity that data are generally as supply on demand alternative additional comparable be placed offices Such commuting with other and institution have and be taken into consideration, goods and community banking and supply in a given area. While ser- ing laws, employment would both services view in- areas. If there for of banking growth, of its office to residence, suggests that Supply-side factor or shopping analysis Economic community of a financial commuting ment 5. in another important the proximity other, generally geographic resi- areas, for purchasing choice tensive population in An ployment, relative distance services. sumer's commu- and located requires joyed of economic two of one community viable alternatives they are at these retailers. between markets task that In the with the range of prices amount banking and difficult exposed community, available exists stitutions of a par- are significantly communities services. and the greater when households community integration market the commonality other financial difference their goods and services in the me- to the media of another dents includ- are quite active in When a significant activity. two growth Smaller depend ticular limited the absolute between and of commerce, 374, U.S. 321,1963. and the affect communities, density, 6. National of the hub com- between the time acquisition v. Philadelphia advertising sufficiently within factors interaction traveling and with factor that can help institutions, Delineating vice areas information ing financial a community are of economic is another dia. Consequently, inter- Comments is a complex in two communities. The transmittal via advertising of economic be must be made as to whether integrated coverage. between for em- political, contain economically vening dependence degree of mar- for locally communities sizes the and commodities surrounding munity to link two areas. Retail establishments, mode and extent natural, related development in- the banks. States vari- must commuting lished sources and local firms, 4. United demand that is the hub of the area's economic nities, recognizing indicated customers nomic Supply and Demand tend to legal barriers.6 boundaries. the central city and the suburbs. The U.S. Supreme of possible A determination in- area also tend to be directly Prices, Concluding density and business the economic transportation existence population and residential the boundaries and shopping, The the intervening in a com- communities include Geographic areas, where banks operating in the suburban might influence linked. of patterns In addition, be and de- be examined. banks competing area.5 ables that factors and branching among mon market action taken by bank A would be transmitted to bank C through hours, would individual delineation supply must analyzed with significant mand of in the other teraction A does not compete C, any areas, be similar a areas are important competitive Assume, bank A competes service market terms, service-area when bank B competes though with the indirectly or intervening ample, X banks deposits of $20 that could lead to an inappropriate market forces banks competi- of county example Although in Y, which is equivalent Y's bank. county to the total deposits Another banks a significant are generating from the Y. The county in county collectively that 8. For a discussion Paul R. Watro, Institutions and Commentary, of nonbank competition, "Competition Banks Federal in between Ohio," see Thrift Economic Reserve Bank of Cleve- land, July 14, 1980. a larger are subscribing daily newspaper. NOTE: No issues of the Economic were published in November 1980. Commentary Address Change o Correct o Remove as shown from mailing list Please send mai ling label to the Research Department, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, OH 44101.
@FedFRASER