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Federal table, while the second show the mean acquired the relevant Generally, the balance typically of the These invested mortgage acquired, conventional findings portfolio tion is somewhat the thrifts to relative to total ratio 12 acquiring more those resources. The ratio nificantly in to balance sheet between the The acquiring S&Ls than those acquired sources ratios of of funds. short- and term debt institutions, to total findings they are higher while deposits imply also suggest the is higher that than because and higher- assets greater gests that rely the long-term and mean advances, other short- thrifts. the extent mortgage thrifts interest as expected. to total expense Thus, income to total the mergers tutions' strengths, will enhance chances of which the resulting existing merged of survival. The and Conclusions evidence beginning with activity tration on industry, local and local to continue, thrift thrifts, decline in barriers inter-industry competition services field. Despite mergers, the given the con- to both in the Control to Act financial merger activity appears of partial, low-cost market of of the industry's in the number ratio in economic current market activity. greater suggesting generally gained mortgage in roughly Research Department P.O. Box 6387 Cleveland,OH Permit 44101 the gers, acquiring institutions ment in secondary mortgage those with associations that were to some by Gary Whalen In cally in 1980 Persistently among and in tandem pressure on the sensitive thrift earnings and Monetary these uct o o no involve- markets merged Please send mailing label to the Research active in this Federal Reserve Bank of Cleveland, Department, P.O. Box 6387, Cleveland, OH 44101. barriers market financial mutual are being financial innovation. in Institutions Control Act of institutions institutions and the less management continue to fall through 1. Thirty-nine mergers occurred in 1979, and 108 occurred in 1980. As of October 31, 1981, 168 voluntary savings and loan mergers were approved by the Federal Home Loan Bank Board for 1981; 17 mergerswere still pending. and essential survival vironment with in this and most expeditiously economies mentary sonnel. can attained through merger. gained in be synergy from if comple- or simply the elimination facilities, ability en- strength be In particular, for competitive such result strengths prerequisite strength may can of duplicate the highly that Combinations This circumvented savings is synonymous for intermediaries, Existing many that size funds. and prod- of loans (S&Ls) has taken the position capital-market to geographic competition and/or liability- has intensified depository nonbank rates Competition of the Depository and regulatory of most services industry among regulated in 1981.1 interest The sav- dramati- have placed severe institutions. 1980-both among nation's volatile with recession such as money market Address correction requested Correct as shown Remove from mailing list the increased accelerated high and Deregulation acquired merger. No. 385 activity ings and loan associations since passage insti- of the mer- with Savings and Loan Mergers in 1980 a the financial reflects access to secon- 5 percent represent BULK RATE U.S. Postage Paid Cleveland,OH Reserve Bank of Cleveland in secondary through the this Merger Federal The mean ratio is markets Given impacts, problems. efficient table that less post-Mone- solution (profit for the acquiring increased These stronger in the to assets (re- more the in environment. of adverse of al- markets. survive the attractive portions competitive, absence insti- from new, result intra- and the large number net change tary able ex- acquiring in local should more profitable greater benefit or different better regulated, The will penetrated combinations concen- efficient, possessing offices markets ready in 1980. 16,1981 ~£QDomicCommentary Sixty-eight generally resources. of of this merger appears to have been slight and repre- sents little cause for concern, tinued presumably of the thrift The impact state and slight. were absorbed more pertise acquisition been were chartered loans, tutions indicates in 1980 and expected may be desirable. that and herein presented has The thrifts insti- savings Summary S&Ls de novo institutions is that the acquiring generally tutions, addition, the acquiring insti- of S&L involvement significantly passbook these However, at the acquiring the total were final of expenses, mortgage ratios and net income The dary While represent institutions and expense The implication acquiring interest cases with complementary on assets) were higher at the acquiring the lower. statement acquired. lower differences non-deposit income to size. income and total institutions heavily rates of a desire increased those higher sug- growth the acquiring although in This finding the expenses These presumably are not per se or perhaps of than those acquired. more ratios acquired because through side of the institutions. on either ratios of net income turn deposits were growing their growth were generally margin) core may have been at- maintain than was deposit those to merger. less gross income ratio reflect than reveals that personnel on net worth institutions merger, ratios of area. thrifts that the consolidation the acquirers generated becoming of institutions faster to through in cap- phaseout and The classes acquiring tempting is limitations continues year prior is sig- expertise or of ratio the and different. significantly tutions, diversification. for The loans. institutions. further CDs, siq- make loans Specifically, large-denomination two Examination expertise classes of the significantly funds money as the to decline. this view. of the liability two rates gain economies acquiring reveals interest to maximize management Examination of O's obtain ability important with total of more extensive This Regulation continue to national markets. loans mortgage may indicate ital ability finding supports than at asset/liability benefits that loans are generally lower This finding institu- presumably liquid and/or mortgage The institutions riskier of mortgage than necessary These and the non-mortgage the to homes. acquiring (slow acquired, possess yielding that assets) the regional a signifi- single-family less risky nificantly they loans relative typical However, do in mortgage of those mortgages absorbed. respect from more although suggest of the differs Proportionately cantly smaller proportion for column possess increasingly sheets are loans and insured are last and t-statistic. of the acquired. assets columns the asset side of the acquiring institutions' those and third of the acquirinq institutions; reports that ratios November Reserve Bank of Cleveland equipment, increased thrifts funds funds are scarce. Access to fluences the ability to tap money on advantageous is essential, deposit or per- size may be a .since becoming capital of thrifts and terms. cheap, core increasingly funds also in- to offer newly Gary Whalen is an economist with the Federal Reserve Bank of Cleveland. The research assistance of June Gates is greatly appreciated. The views stated herein are those of the author and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. authorized financial be expensive and initially cess to funds data in the organizations financial can mortgage thrifts profit- the secondary asset/liability the use of financial with branches relatively Percent change in total S&L (19)' and accurate highest of Idaho mergers and of the these Such examination insights consolidations nancial markets, on the structure the and the industry institutions of of fi- involved, in general. Geographic Patterns According Board to data, Home 143 voluntary Loan merger Bank applica- its potential impact Merger activity positively S&L deposit market rather than centrated in Pennsylvania (22 con- mergers), attempt economies tion. Alternatively, the findings 1). change in that during the year share found correlated with both change rough in the bank and proxy of finding to be level and savings and total bank/thrift, a stimulus activity was tively correlated in S&L total assets, state. The correlated of industry merger may indicate that associations to consolida- the positive correlation in concentration and market and Acquiring positively The second may effect." This year, within slower activity. a finding suggests result in non7 adverse economic through occurred in urban (see table 2). Merger activity in 49 (9 Washington, D.C. Mer- different SMSAs, mergers), (6), Cincinnati items) tained that merger so-called "snowthat this a. The sum of construction, (7), * ** (6), and (5). The data in the table suggest in at least 75 mergers the branches in other acquiring presumably economically of the same or different institution ob- well-located attractive portions local markets.f thrifts ultimately not will produce these 0.831 0.037 0.701 0.822 0.025 0.777 0.95 1.67** -4.40** 0.024 0.067 0.264 0.063 0.031 0.046 0.Q16 0.Q16 0.077 0.278 0.041 0.026 0.030 0.011 2_25** -2.26** -1.04 2.20** 1.37* 3.59** 2.04** 0.057 0.0049 0.114 0.086 0.0062 0.071 0.087 0.072 0.760 0.929 0.098 0.06 0.0061 0.075 0.088 0.0056 0.063 0.089 0.085 0.729 0.937 0.066 -1.05 -1.33* 2.40** -1.77** 1.55* 1.61* -3.19** -4.68** 3.76** -1.59* 1.82** mobile-home, and home-improvement loans. at the 10 percent level (one-tail test). at the 5 percent level (one-tail testl. involved pends combinations advantages for the 5. The impact on SMSA concentration also appears to have been slight. The average five-firm concentration ratio for these SMSA areas rose only 0.4 of 1 percent to 38.0. and the publ ic at large de- on the characteristics institutions, of the merging such as their size and past per- formance. The acquiring larger percent Characteristics of Merging Institutions or t-8tatistic (sum of the last than institutions were acquired. In 30 those of the mergers, the acquiring insti- tution had greater than $500 million in total assets; in 69 percent were greater gers, the 4. The average five-firm concentration ratio for the five states with the most mergers increased approximately 0.5 percentage point during 1980, to 24.1. Significant Significant typically Whether Acquired mean led by Chicago mer- regulations. implies improve. of mergers Pittsburgh indicates conditions bulk Philadelphia four even if areas that 1979 in the future, 3. Merger rates are the number of mergers that have occurred, divided by the number of S&Ls existing in 1979. This measure thus controls for the impact of the number of S&Ls operating in a state on the number of mergers. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 25 in SMSA may continue mar- branching to because of branching the headquartered occurred change rather than complements, produce in non-SMSA SMSA, acquired SMSA related first 27 in SMSA, a to be negatively and expansion finding 16 in dif- headquartered Acquiring 7. 8. 9. 10. in same SMSA, county acquired to be nega- de novo 1980 activity. presumably ball different current that merger also was found with 6. 51 Both headquartered mer- S&L conditions stimulates branching activity found suggest ger are substitutes The in same SMSA, Acquiring mean Mortgage loans/total assets Insured mortgage loans/total assets Conventional single-family loans/ mortgage loans Non-mortgage loansa /mortgage loans Liquid assets/total assets Passbook deposits/total deposits Large CDs/total deposits Short-term advances/total assets Long-term advances/total assets Other short-term debt/ total assets Net worth/total assets Slow mortgage loans/total assets Percent change, total assets, 1978-79 Total income/total assets Net income/total assets Net income/total income Mortgage income/mortgage loans Personnel expenses/total income Total interest expense/total income Total expenses/total income Participations plus whole loans sold/ mortgage loans 4. 5. 67 same county bank intense to with the percentage results ger activity activity Both headquartered activity assets over the preceding for 101 in same SMSA competition. that is loan 1. 2. 3. 119 headquartered Both headquartered nega- Ratio headquartered Both headquartered The Merger a proxy Acquired pro- prevailing the thrift suggests competition of cases ferent SMSAs were of This of rates percent static con- becoming Number in SMSA area in regulatory proxies of in SMSA area to competition are conditions. Acquiring In any event, industry, measures competitive result, the of size through change services poorer ket growth correlated Assuming determinant, these under- (see table is primarily of the merging gain between 2. This figure includes 35 merger applications submitted during 1980 but not approved by year-end. These were 'included in the analysis because thrift mergers rarely are denied and because these mergers were presumably motivated by the same conditions influencing those completed during the year. concentration. the environ- merger activ- level and percent structure in 36 different bulk was increases barriers gressively indicating to gain a better ity and However, ger activity. financial of the forces affecting the (0.22), (0.09).3 standing both were California rates and variables ment were correlated performance, the (0.11), of each state's the with activity, of Columbia Nebraska The merger the nature tions were considered by regulatory authorities during 1980.2 This activity occurred states, of merger in the District (0.15), with Federal measure (11), Illinois produce decline nonregulatory Merger Merger rates, a more (6). (0.09), and Pennsylvania pro- as to the impact (16), California Wisconsin patterns institutions. -0.15 0.52 Ohio continued centration change in offices due to 1980 de novo branching the Location merging institutions merger- may concentration in the financial -0.29 assets, 1978-79 during 1980, vides valuable given and impacts. Table 3 Selected Performance Ratios of Merging Institutions Table 2 SMSA Merger Patterns in respective that changes of position their imply to have been slight.4 tively discusses characteristics structural appear -0.33 in findings 0.10 the attempt their relative distribution These anti-competitive -0.12 change in S&L share on geographic size in statewide total assets may reflect to maintain 0.68 change in concentra- Percent Percent activity related S&L concentration S&L share of bank and thrift focusing merging states. well-located Commentary the the tion, 1978-79 savings and loan merger activity the Correlation coefficients organi- and to tap core deposits. Economic Percent futures. that are essential to deliver retail ser- vices to consumers This cheap, variables ratio, 1979 loans, manage- Merger also may provide the resulting zation the Five-firm in today's offer non-mortgage astute including afford in the future to utilize markets, for Larger For example, intermediation practice ment, success environment. able financial and readily for State environment systems, industry. more thrifts Ac- now necessary financial merger Table 1 Merger Rate Correlations to finance delivery effort essential may require unprofitable. electronic and the marketing expertise which tend to also is necessary processing, survival services, the acquiring largest respective state. of the $100 million. than five mergers, had less than of the cases, the assets institution thrift was one organizations Alternatively, the In 41 mer- in total percent of the cases, it had less than $25 million. Similarities formance S&Ls prior testing and for balance-sheet to merger differences and of the two groups r-test amined differences characteristics (see table of can in in the the be detected the means income-statement of institutions 3).6 The per- merging mean by of ratios using the ratios are listed in the first column ex- of the in its in 31 percent acquired $10 million of 48 institution assets; in 6. All analysis in this section is based on a matched sample of 113 S&Ls for which complete data were available on both of the Federal Home Loan Bank Board 1979 semi-annual report of condition tapes. authorized financial be expensive and initially cess to funds data in the organizations financial can mortgage thrifts profit- the secondary asset/liability the use of financial with branches relatively Percent change in total S&L (19)' and accurate highest of Idaho mergers and of the these Such examination insights consolidations nancial markets, on the structure the and the industry institutions of of fi- involved, in general. Geographic Patterns According Board to data, Home 143 voluntary Loan merger Bank applica- its potential impact Merger activity positively S&L deposit market rather than centrated in Pennsylvania (22 con- mergers), attempt economies tion. Alternatively, the findings 1). change in that during the year share found correlated with both change rough in the bank and proxy of finding to be level and savings and total bank/thrift, a stimulus activity was tively correlated in S&L total assets, state. The correlated of industry merger may indicate that associations to consolida- the positive correlation in concentration and market and Acquiring positively The second may effect." This year, within slower activity. a finding suggests result in non7 adverse economic through occurred in urban (see table 2). Merger activity in 49 (9 Washington, D.C. Mer- different SMSAs, mergers), (6), Cincinnati items) tained that merger so-called "snowthat this a. The sum of construction, (7), * ** (6), and (5). The data in the table suggest in at least 75 mergers the branches in other acquiring presumably economically of the same or different institution ob- well-located attractive portions local markets.f thrifts ultimately not will produce these 0.831 0.037 0.701 0.822 0.025 0.777 0.95 1.67** -4.40** 0.024 0.067 0.264 0.063 0.031 0.046 0.Q16 0.Q16 0.077 0.278 0.041 0.026 0.030 0.011 2_25** -2.26** -1.04 2.20** 1.37* 3.59** 2.04** 0.057 0.0049 0.114 0.086 0.0062 0.071 0.087 0.072 0.760 0.929 0.098 0.06 0.0061 0.075 0.088 0.0056 0.063 0.089 0.085 0.729 0.937 0.066 -1.05 -1.33* 2.40** -1.77** 1.55* 1.61* -3.19** -4.68** 3.76** -1.59* 1.82** mobile-home, and home-improvement loans. at the 10 percent level (one-tail test). at the 5 percent level (one-tail testl. involved pends combinations advantages for the 5. The impact on SMSA concentration also appears to have been slight. The average five-firm concentration ratio for these SMSA areas rose only 0.4 of 1 percent to 38.0. and the publ ic at large de- on the characteristics institutions, of the merging such as their size and past per- formance. The acquiring larger percent Characteristics of Merging Institutions or t-8tatistic (sum of the last than institutions were acquired. In 30 those of the mergers, the acquiring insti- tution had greater than $500 million in total assets; in 69 percent were greater gers, the 4. The average five-firm concentration ratio for the five states with the most mergers increased approximately 0.5 percentage point during 1980, to 24.1. Significant Significant typically Whether Acquired mean led by Chicago mer- regulations. implies improve. of mergers Pittsburgh indicates conditions bulk Philadelphia four even if areas that 1979 in the future, 3. Merger rates are the number of mergers that have occurred, divided by the number of S&Ls existing in 1979. This measure thus controls for the impact of the number of S&Ls operating in a state on the number of mergers. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 25 in SMSA may continue mar- branching to because of branching the headquartered occurred change rather than complements, produce in non-SMSA SMSA, acquired SMSA related first 27 in SMSA, a to be negatively and expansion finding 16 in dif- headquartered Acquiring 7. 8. 9. 10. in same SMSA, county acquired to be nega- de novo 1980 activity. presumably ball different current that merger also was found with 6. 51 Both headquartered mer- S&L conditions stimulates branching activity found suggest ger are substitutes The in same SMSA, Acquiring mean Mortgage loans/total assets Insured mortgage loans/total assets Conventional single-family loans/ mortgage loans Non-mortgage loansa /mortgage loans Liquid assets/total assets Passbook deposits/total deposits Large CDs/total deposits Short-term advances/total assets Long-term advances/total assets Other short-term debt/ total assets Net worth/total assets Slow mortgage loans/total assets Percent change, total assets, 1978-79 Total income/total assets Net income/total assets Net income/total income Mortgage income/mortgage loans Personnel expenses/total income Total interest expense/total income Total expenses/total income Participations plus whole loans sold/ mortgage loans 4. 5. 67 same county bank intense to with the percentage results ger activity activity Both headquartered activity assets over the preceding for 101 in same SMSA competition. that is loan 1. 2. 3. 119 headquartered Both headquartered nega- Ratio headquartered Both headquartered The Merger a proxy Acquired pro- prevailing the thrift suggests competition of cases ferent SMSAs were of This of rates percent static con- becoming Number in SMSA area in regulatory proxies of in SMSA area to competition are conditions. Acquiring In any event, industry, measures competitive result, the of size through change services poorer ket growth correlated Assuming determinant, these under- (see table is primarily of the merging gain between 2. This figure includes 35 merger applications submitted during 1980 but not approved by year-end. These were 'included in the analysis because thrift mergers rarely are denied and because these mergers were presumably motivated by the same conditions influencing those completed during the year. concentration. the environ- merger activ- level and percent structure in 36 different bulk was increases barriers gressively indicating to gain a better ity and However, ger activity. financial of the forces affecting the (0.22), (0.09).3 standing both were California rates and variables ment were correlated performance, the (0.11), of each state's the with activity, of Columbia Nebraska The merger the nature tions were considered by regulatory authorities during 1980.2 This activity occurred states, of merger in the District (0.15), with Federal measure (11), Illinois produce decline nonregulatory Merger Merger rates, a more (6). (0.09), and Pennsylvania pro- as to the impact (16), California Wisconsin patterns institutions. -0.15 0.52 Ohio continued centration change in offices due to 1980 de novo branching the Location merging institutions merger- may concentration in the financial -0.29 assets, 1978-79 during 1980, vides valuable given and impacts. Table 3 Selected Performance Ratios of Merging Institutions Table 2 SMSA Merger Patterns in respective that changes of position their imply to have been slight.4 tively discusses characteristics structural appear -0.33 in findings 0.10 the attempt their relative distribution These anti-competitive -0.12 change in S&L share on geographic size in statewide total assets may reflect to maintain 0.68 change in concentra- Percent Percent activity related S&L concentration S&L share of bank and thrift focusing merging states. well-located Commentary the the tion, 1978-79 savings and loan merger activity the Correlation coefficients organi- and to tap core deposits. Economic Percent futures. that are essential to deliver retail ser- vices to consumers This cheap, variables ratio, 1979 loans, manage- Merger also may provide the resulting zation the Five-firm in today's offer non-mortgage astute including afford in the future to utilize markets, for Larger For example, intermediation practice ment, success environment. able financial and readily for State environment systems, industry. more thrifts Ac- now necessary financial merger Table 1 Merger Rate Correlations to finance delivery effort essential may require unprofitable. electronic and the marketing expertise which tend to also is necessary processing, survival services, the acquiring largest respective state. of the $100 million. than five mergers, had less than of the cases, the assets institution thrift was one organizations Alternatively, the In 41 mer- in total percent of the cases, it had less than $25 million. Similarities formance S&Ls prior testing and for balance-sheet to merger differences and of the two groups r-test amined differences characteristics (see table of can in in the the be detected the means income-statement of institutions 3).6 The per- merging mean by of ratios using the ratios are listed in the first column ex- of the in its in 31 percent acquired $10 million of 48 institution assets; in 6. All analysis in this section is based on a matched sample of 113 S&Ls for which complete data were available on both of the Federal Home Loan Bank Board 1979 semi-annual report of condition tapes. authorized financial be expensive and initially cess to funds data in the organizations financial can mortgage thrifts profit- the secondary asset/liability the use of financial with branches relatively Percent change in total S&L (19)' and accurate highest of Idaho mergers and of the these Such examination insights consolidations nancial markets, on the structure the and the industry institutions of of fi- involved, in general. Geographic Patterns According Board to data, Home 143 voluntary Loan merger Bank applica- its potential impact Merger activity positively S&L deposit market rather than centrated in Pennsylvania (22 con- mergers), attempt economies tion. Alternatively, the findings 1). change in that during the year share found correlated with both change rough in the bank and proxy of finding to be level and savings and total bank/thrift, a stimulus activity was tively correlated in S&L total assets, state. The correlated of industry merger may indicate that associations to consolida- the positive correlation in concentration and market and Acquiring positively The second may effect." This year, within slower activity. a finding suggests result in non7 adverse economic through occurred in urban (see table 2). Merger activity in 49 (9 Washington, D.C. Mer- different SMSAs, mergers), (6), Cincinnati items) tained that merger so-called "snowthat this a. The sum of construction, (7), * ** (6), and (5). The data in the table suggest in at least 75 mergers the branches in other acquiring presumably economically of the same or different institution ob- well-located attractive portions local markets.f thrifts ultimately not will produce these 0.831 0.037 0.701 0.822 0.025 0.777 0.95 1.67** -4.40** 0.024 0.067 0.264 0.063 0.031 0.046 0.Q16 0.Q16 0.077 0.278 0.041 0.026 0.030 0.011 2_25** -2.26** -1.04 2.20** 1.37* 3.59** 2.04** 0.057 0.0049 0.114 0.086 0.0062 0.071 0.087 0.072 0.760 0.929 0.098 0.06 0.0061 0.075 0.088 0.0056 0.063 0.089 0.085 0.729 0.937 0.066 -1.05 -1.33* 2.40** -1.77** 1.55* 1.61* -3.19** -4.68** 3.76** -1.59* 1.82** mobile-home, and home-improvement loans. at the 10 percent level (one-tail test). at the 5 percent level (one-tail testl. involved pends combinations advantages for the 5. The impact on SMSA concentration also appears to have been slight. The average five-firm concentration ratio for these SMSA areas rose only 0.4 of 1 percent to 38.0. and the publ ic at large de- on the characteristics institutions, of the merging such as their size and past per- formance. The acquiring larger percent Characteristics of Merging Institutions or t-8tatistic (sum of the last than institutions were acquired. In 30 those of the mergers, the acquiring insti- tution had greater than $500 million in total assets; in 69 percent were greater gers, the 4. The average five-firm concentration ratio for the five states with the most mergers increased approximately 0.5 percentage point during 1980, to 24.1. Significant Significant typically Whether Acquired mean led by Chicago mer- regulations. implies improve. of mergers Pittsburgh indicates conditions bulk Philadelphia four even if areas that 1979 in the future, 3. Merger rates are the number of mergers that have occurred, divided by the number of S&Ls existing in 1979. This measure thus controls for the impact of the number of S&Ls operating in a state on the number of mergers. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 25 in SMSA may continue mar- branching to because of branching the headquartered occurred change rather than complements, produce in non-SMSA SMSA, acquired SMSA related first 27 in SMSA, a to be negatively and expansion finding 16 in dif- headquartered Acquiring 7. 8. 9. 10. in same SMSA, county acquired to be nega- de novo 1980 activity. presumably ball different current that merger also was found with 6. 51 Both headquartered mer- S&L conditions stimulates branching activity found suggest ger are substitutes The in same SMSA, Acquiring mean Mortgage loans/total assets Insured mortgage loans/total assets Conventional single-family loans/ mortgage loans Non-mortgage loansa /mortgage loans Liquid assets/total assets Passbook deposits/total deposits Large CDs/total deposits Short-term advances/total assets Long-term advances/total assets Other short-term debt/ total assets Net worth/total assets Slow mortgage loans/total assets Percent change, total assets, 1978-79 Total income/total assets Net income/total assets Net income/total income Mortgage income/mortgage loans Personnel expenses/total income Total interest expense/total income Total expenses/total income Participations plus whole loans sold/ mortgage loans 4. 5. 67 same county bank intense to with the percentage results ger activity activity Both headquartered activity assets over the preceding for 101 in same SMSA competition. that is loan 1. 2. 3. 119 headquartered Both headquartered nega- Ratio headquartered Both headquartered The Merger a proxy Acquired pro- prevailing the thrift suggests competition of cases ferent SMSAs were of This of rates percent static con- becoming Number in SMSA area in regulatory proxies of in SMSA area to competition are conditions. Acquiring In any event, industry, measures competitive result, the of size through change services poorer ket growth correlated Assuming determinant, these under- (see table is primarily of the merging gain between 2. This figure includes 35 merger applications submitted during 1980 but not approved by year-end. These were 'included in the analysis because thrift mergers rarely are denied and because these mergers were presumably motivated by the same conditions influencing those completed during the year. concentration. the environ- merger activ- level and percent structure in 36 different bulk was increases barriers gressively indicating to gain a better ity and However, ger activity. financial of the forces affecting the (0.22), (0.09).3 standing both were California rates and variables ment were correlated performance, the (0.11), of each state's the with activity, of Columbia Nebraska The merger the nature tions were considered by regulatory authorities during 1980.2 This activity occurred states, of merger in the District (0.15), with Federal measure (11), Illinois produce decline nonregulatory Merger Merger rates, a more (6). (0.09), and Pennsylvania pro- as to the impact (16), California Wisconsin patterns institutions. -0.15 0.52 Ohio continued centration change in offices due to 1980 de novo branching the Location merging institutions merger- may concentration in the financial -0.29 assets, 1978-79 during 1980, vides valuable given and impacts. Table 3 Selected Performance Ratios of Merging Institutions Table 2 SMSA Merger Patterns in respective that changes of position their imply to have been slight.4 tively discusses characteristics structural appear -0.33 in findings 0.10 the attempt their relative distribution These anti-competitive -0.12 change in S&L share on geographic size in statewide total assets may reflect to maintain 0.68 change in concentra- Percent Percent activity related S&L concentration S&L share of bank and thrift focusing merging states. well-located Commentary the the tion, 1978-79 savings and loan merger activity the Correlation coefficients organi- and to tap core deposits. Economic Percent futures. that are essential to deliver retail ser- vices to consumers This cheap, variables ratio, 1979 loans, manage- Merger also may provide the resulting zation the Five-firm in today's offer non-mortgage astute including afford in the future to utilize markets, for Larger For example, intermediation practice ment, success environment. able financial and readily for State environment systems, industry. more thrifts Ac- now necessary financial merger Table 1 Merger Rate Correlations to finance delivery effort essential may require unprofitable. electronic and the marketing expertise which tend to also is necessary processing, survival services, the acquiring largest respective state. of the $100 million. than five mergers, had less than of the cases, the assets institution thrift was one organizations Alternatively, the In 41 mer- in total percent of the cases, it had less than $25 million. Similarities formance S&Ls prior testing and for balance-sheet to merger differences and of the two groups r-test amined differences characteristics (see table of can in in the the be detected the means income-statement of institutions 3).6 The per- merging mean by of ratios using the ratios are listed in the first column ex- of the in its in 31 percent acquired $10 million of 48 institution assets; in 6. All analysis in this section is based on a matched sample of 113 S&Ls for which complete data were available on both of the Federal Home Loan Bank Board 1979 semi-annual report of condition tapes. Federal table, while the second show the mean acquired the relevant Generally, the balance typically of the These invested mortgage acquired, conventional findings portfolio tion is somewhat the thrifts to relative to total ratio 12 acquiring more those resources. The ratio nificantly in to balance sheet between the The acquiring S&Ls than those acquired sources ratios of of funds. short- and term debt institutions, to total findings they are higher while deposits imply also suggest the is higher that than because and higher- assets greater gests that rely the long-term and mean advances, other short- thrifts. the extent mortgage thrifts interest as expected. to total expense Thus, income to total the mergers tutions' strengths, will enhance chances of which the resulting existing merged of survival. The and Conclusions evidence beginning with activity tration on industry, local and local to continue, thrift thrifts, decline in barriers inter-industry competition services field. Despite mergers, the given the con- to both in the Control to Act financial merger activity appears of partial, low-cost market of of the industry's in the number ratio in economic current market activity. greater suggesting generally gained mortgage in roughly Research Department P.O. Box 6387 Cleveland,OH Permit 44101 the gers, acquiring institutions ment in secondary mortgage those with associations that were to some by Gary Whalen In cally in 1980 Persistently among and in tandem pressure on the sensitive thrift earnings and Monetary these uct o o no involve- markets merged Please send mailing label to the Research active in this Federal Reserve Bank of Cleveland, Department, P.O. Box 6387, Cleveland, OH 44101. barriers market financial mutual are being financial innovation. in Institutions Control Act of institutions institutions and the less management continue to fall through 1. Thirty-nine mergers occurred in 1979, and 108 occurred in 1980. As of October 31, 1981, 168 voluntary savings and loan mergers were approved by the Federal Home Loan Bank Board for 1981; 17 mergerswere still pending. and essential survival vironment with in this and most expeditiously economies mentary sonnel. can attained through merger. gained in be synergy from if comple- or simply the elimination facilities, ability en- strength be In particular, for competitive such result strengths prerequisite strength may can of duplicate the highly that Combinations This circumvented savings is synonymous for intermediaries, Existing many that size funds. and prod- of loans (S&Ls) has taken the position capital-market to geographic competition and/or liability- has intensified depository nonbank rates Competition of the Depository and regulatory of most services industry among regulated in 1981.1 interest The sav- dramati- have placed severe institutions. 1980-both among nation's volatile with recession such as money market Address correction requested Correct as shown Remove from mailing list the increased accelerated high and Deregulation acquired merger. No. 385 activity ings and loan associations since passage insti- of the mer- with Savings and Loan Mergers in 1980 a the financial reflects access to secon- 5 percent represent BULK RATE U.S. Postage Paid Cleveland,OH Reserve Bank of Cleveland in secondary through the this Merger Federal The mean ratio is markets Given impacts, problems. efficient table that less post-Mone- solution (profit for the acquiring increased These stronger in the to assets (re- more the in environment. of adverse of al- markets. survive the attractive portions competitive, absence insti- from new, result intra- and the large number net change tary able ex- acquiring in local should more profitable greater benefit or different better regulated, The will penetrated combinations concen- efficient, possessing offices markets ready in 1980. 16,1981 ~£QDomicCommentary Sixty-eight generally resources. of of this merger appears to have been slight and repre- sents little cause for concern, tinued presumably of the thrift The impact state and slight. were absorbed more pertise acquisition been were chartered loans, tutions indicates in 1980 and expected may be desirable. that and herein presented has The thrifts insti- savings Summary S&Ls de novo institutions is that the acquiring generally tutions, addition, the acquiring insti- of S&L involvement significantly passbook these However, at the acquiring the total were final of expenses, mortgage ratios and net income The dary While represent institutions and expense The implication acquiring interest cases with complementary on assets) were higher at the acquiring the lower. statement acquired. lower differences non-deposit income to size. income and total institutions heavily rates of a desire increased those higher sug- growth the acquiring although in This finding the expenses These presumably are not per se or perhaps of than those acquired. more ratios acquired because through side of the institutions. on either ratios of net income turn deposits were growing their growth were generally margin) core may have been at- maintain than was deposit those to merger. less gross income ratio reflect than reveals that personnel on net worth institutions merger, ratios of area. thrifts that the consolidation the acquirers generated becoming of institutions faster to through in cap- phaseout and The classes acquiring tempting is limitations continues year prior is sig- expertise or of ratio the and different. significantly tutions, diversification. for The loans. institutions. further CDs, siq- make loans Specifically, large-denomination two Examination expertise classes of the significantly funds money as the to decline. this view. of the liability two rates gain economies acquiring reveals interest to maximize management Examination of O's obtain ability important with total of more extensive This Regulation continue to national markets. loans mortgage may indicate ital ability finding supports than at asset/liability benefits that loans are generally lower This finding institu- presumably liquid and/or mortgage The institutions riskier of mortgage than necessary These and the non-mortgage the to homes. acquiring (slow acquired, possess yielding that assets) the regional a signifi- single-family less risky nificantly they loans relative typical However, do in mortgage of those mortgages absorbed. respect from more although suggest of the differs Proportionately cantly smaller proportion for column possess increasingly sheets are loans and insured are last and t-statistic. of the acquired. assets columns the asset side of the acquiring institutions' those and third of the acquirinq institutions; reports that ratios November Reserve Bank of Cleveland equipment, increased thrifts funds funds are scarce. Access to fluences the ability to tap money on advantageous is essential, deposit or per- size may be a .since becoming capital of thrifts and terms. cheap, core increasingly funds also in- to offer newly Gary Whalen is an economist with the Federal Reserve Bank of Cleveland. The research assistance of June Gates is greatly appreciated. The views stated herein are those of the author and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Federal table, while the second show the mean acquired the relevant Generally, the balance typically of the These invested mortgage acquired, conventional findings portfolio tion is somewhat the thrifts to relative to total ratio 12 acquiring more those resources. The ratio nificantly in to balance sheet between the The acquiring S&Ls than those acquired sources ratios of of funds. short- and term debt institutions, to total findings they are higher while deposits imply also suggest the is higher that than because and higher- assets greater gests that rely the long-term and mean advances, other short- thrifts. the extent mortgage thrifts interest as expected. to total expense Thus, income to total the mergers tutions' strengths, will enhance chances of which the resulting existing merged of survival. The and Conclusions evidence beginning with activity tration on industry, local and local to continue, thrift thrifts, decline in barriers inter-industry competition services field. Despite mergers, the given the con- to both in the Control to Act financial merger activity appears of partial, low-cost market of of the industry's in the number ratio in economic current market activity. greater suggesting generally gained mortgage in roughly Research Department P.O. Box 6387 Cleveland,OH Permit 44101 the gers, acquiring institutions ment in secondary mortgage those with associations that were to some by Gary Whalen In cally in 1980 Persistently among and in tandem pressure on the sensitive thrift earnings and Monetary these uct o o no involve- markets merged Please send mailing label to the Research active in this Federal Reserve Bank of Cleveland, Department, P.O. Box 6387, Cleveland, OH 44101. barriers market financial mutual are being financial innovation. in Institutions Control Act of institutions institutions and the less management continue to fall through 1. Thirty-nine mergers occurred in 1979, and 108 occurred in 1980. As of October 31, 1981, 168 voluntary savings and loan mergers were approved by the Federal Home Loan Bank Board for 1981; 17 mergerswere still pending. and essential survival vironment with in this and most expeditiously economies mentary sonnel. can attained through merger. gained in be synergy from if comple- or simply the elimination facilities, ability en- strength be In particular, for competitive such result strengths prerequisite strength may can of duplicate the highly that Combinations This circumvented savings is synonymous for intermediaries, Existing many that size funds. and prod- of loans (S&Ls) has taken the position capital-market to geographic competition and/or liability- has intensified depository nonbank rates Competition of the Depository and regulatory of most services industry among regulated in 1981.1 interest The sav- dramati- have placed severe institutions. 1980-both among nation's volatile with recession such as money market Address correction requested Correct as shown Remove from mailing list the increased accelerated high and Deregulation acquired merger. No. 385 activity ings and loan associations since passage insti- of the mer- with Savings and Loan Mergers in 1980 a the financial reflects access to secon- 5 percent represent BULK RATE U.S. Postage Paid Cleveland,OH Reserve Bank of Cleveland in secondary through the this Merger Federal The mean ratio is markets Given impacts, problems. efficient table that less post-Mone- solution (profit for the acquiring increased These stronger in the to assets (re- more the in environment. of adverse of al- markets. survive the attractive portions competitive, absence insti- from new, result intra- and the large number net change tary able ex- acquiring in local should more profitable greater benefit or different better regulated, The will penetrated combinations concen- efficient, possessing offices markets ready in 1980. 16,1981 ~£QDomicCommentary Sixty-eight generally resources. of of this merger appears to have been slight and repre- sents little cause for concern, tinued presumably of the thrift The impact state and slight. were absorbed more pertise acquisition been were chartered loans, tutions indicates in 1980 and expected may be desirable. that and herein presented has The thrifts insti- savings Summary S&Ls de novo institutions is that the acquiring generally tutions, addition, the acquiring insti- of S&L involvement significantly passbook these However, at the acquiring the total were final of expenses, mortgage ratios and net income The dary While represent institutions and expense The implication acquiring interest cases with complementary on assets) were higher at the acquiring the lower. statement acquired. lower differences non-deposit income to size. income and total institutions heavily rates of a desire increased those higher sug- growth the acquiring although in This finding the expenses These presumably are not per se or perhaps of than those acquired. more ratios acquired because through side of the institutions. on either ratios of net income turn deposits were growing their growth were generally margin) core may have been at- maintain than was deposit those to merger. less gross income ratio reflect than reveals that personnel on net worth institutions merger, ratios of area. thrifts that the consolidation the acquirers generated becoming of institutions faster to through in cap- phaseout and The classes acquiring tempting is limitations continues year prior is sig- expertise or of ratio the and different. significantly tutions, diversification. for The loans. institutions. further CDs, siq- make loans Specifically, large-denomination two Examination expertise classes of the significantly funds money as the to decline. this view. of the liability two rates gain economies acquiring reveals interest to maximize management Examination of O's obtain ability important with total of more extensive This Regulation continue to national markets. loans mortgage may indicate ital ability finding supports than at asset/liability benefits that loans are generally lower This finding institu- presumably liquid and/or mortgage The institutions riskier of mortgage than necessary These and the non-mortgage the to homes. acquiring (slow acquired, possess yielding that assets) the regional a signifi- single-family less risky nificantly they loans relative typical However, do in mortgage of those mortgages absorbed. respect from more although suggest of the differs Proportionately cantly smaller proportion for column possess increasingly sheets are loans and insured are last and t-statistic. of the acquired. assets columns the asset side of the acquiring institutions' those and third of the acquirinq institutions; reports that ratios November Reserve Bank of Cleveland equipment, increased thrifts funds funds are scarce. Access to fluences the ability to tap money on advantageous is essential, deposit or per- size may be a .since becoming capital of thrifts and terms. cheap, core increasingly funds also in- to offer newly Gary Whalen is an economist with the Federal Reserve Bank of Cleveland. The research assistance of June Gates is greatly appreciated. The views stated herein are those of the author and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System.
@FedFRASER