The bank merge

The Developing Economies, XL-4 (December 2002): 435–66

THE GLOBAL BANK MERGER WAVE: IMPLICATIONS FOR DEVELOPING COUNTRIES
GARY A. DYMSKI

This paper reconsiders causes and implications of the global bank merger wave, especially for developing economies. Previous studies of the global bank mergers—that is, mergers between banks from different nations—had assumed that these combinations are efficiency-driven, and that the U.S. case defines the paradigm for all other nations’ banking systems. This paper argues that the U.S. experience is unique, not paradigmatic, and that bank mergers are not efficiency-driven; instead, this merger wave has arisen because of macrostructural circumstances and because of shifts over time in banks’ strategic motives. This paper argues that large, offshore banks often engage in cross-border mergers because they want to provide financial services to households and firms that have reached minimal threshold wealth levels. For developing economies, this suggests that cross-border acquisitions of local banks by offshore banks will have mixed effects; and it cannot be assumed that the net social impact is positive.

I. INTRODUCTION paper reconsiders the causes and implications of the global bank merger wave, especially for developing economies. Most of the academic studies on this bank merger wave have focused on the United States. Studies on cross-border mergers (Demirgüç-Kunt, Levine, and Min 1998; BIS 2001) largely consider the developed economies, with just a few (Claessens and Jansen 2000; Clarke et al. 2001) examining cross-border financial mergers in developing economies. All of these studies almost invariably rely on two maintained hypotheses: first, that a set of common “microeconomic” forces—economies of scale and scope, unleashed by deregulation and driven by technical change—underlies this global financial merger wave; second, the U.S. merger wave constitutes the global paradigm. The links between mergers, efficiency, and U.S.