Banking in an Unregulated Environment (RLE Banking and Finance) by Doti Lynne Pierson;

Author:Doti, Lynne Pierson; [Lynne Pierson Doti]
Language: eng
Format: epub
ISBN: 1186436
Publisher: Taylor & Francis Group

Defining the Market and Product

Any indicator of concentration requires defining the relevant product and the market areas for these products. The standard metropolitan statistical area is used for most studies of the modern banking industrial structure, simply because the data are available. It may be that the appropriate market area is the metropolitan area. Smaller customers of a bank, households and small businesses, because of traditional banking practice and convenience, rely heavily on banks within a few miles. But it might be more appropriate to use a much larger area. Using a larger area, however, risks underestimates of concentration.

Historical studies have also tended toward defining the market by the available data. Davis' source for information was the annual reports of the Comptroller of the Currency. The Comptroller aggregated all reported earnings by state or reserve city. It is most easily available in the summaries which group the results into five regions and reserve cities. Davis then defines the relevant market as the comptroller's regions. This definition of the market was followed by the later researchers of the late nineteenth century United States, although Smiley and James make some modifications in the regions.

It would be difficult to define the appropriate market for nineteenth century California banking. The product was probably not designed for the small business or household consumer. Most historical work indicates banks primarily served large commercial customers. This can be verified by data on the size of loans or deposit accounts. For the present, it seems best to follow tradition and define the market according to the available data.

Most census data and property tax information was reported by county, and banks reported the loans on real estate by county. Therefore the county is used as the market area. For many tests the counties are grouped into regions. With small amounts and uncertain reliability of data, the grouping was used to increase accuracy. There were often many counties where no reports were available, or the particular information needed was reported by few banks. This problem is also solved by grouping the counties into regions.

Even where the data is reported by region, the market definition will certainly be more accurate than the much larger regions of the United States used by Davis and others. Only Richard Keehn made an earlier attempt to identify markets within a state.28

Other studies necessarily ignored the competition national commercial banks face from state banks and other types of financial institutions. In most states the national banks had close competition from state-chartered banks, but the lack of available data on state banks forced their exclusion from the studies. It is intended that this, and similar studies, will remedy this gap in knowledge. Only a systematic, state-by-state effort will yield the information necessary to construct an accurate portrayal of the United States financial structure.

For this study state banks are emphasized. In California, the state banks provided most of the banking services in the nineteenth century. National banks were not common until after 1900. Concentration on national banks is not likely to lead to accurate results in this or other states where the situation was similar.

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