WASHINGTON -- Contrary to popular opinion, commercial banking has not lost market share during the past four decades, the Federal Reserve Bank of Minneapolis concludes in a new report.
"Our conclusion, based on an analysis of a variety of data, is that there is no evidence of a significant decline in banking within the United States," senior Fed researcher John H. Boyd and New York University economics professor Mark Gertler wrote in the Summer 1994 Quarterly Review.
The two economists wrote that people have been inaccurately measuring banks' market share by relying on balance-sheet items only. Using this method, banks have gone from controlling 45% of-the market in 1974 to 32% today.
That method, however, fails to account for non-balance-sheet activities, they said. The numbers changed once the authors factored in loans to foreign countries, mortgages sold to the secondary market, letters of credit, and use of derivatives.
Rather than dropping from its 45% share, commercial banking's market share remained steady, the researchers found.
"If we are right that banking is not a declining industry," they wrote, "then more than an academic interest is at stake. Important public policy decisions have been and continue to be based on the consensus view."
The authors state that the government may no longer feel compelled to encourage bank mergers in an effort to ensure the industry's health. It also might not need to give banks additional powers to compete.
"If public policy is based on bad assumptions, it is not likely to be good, except by accident," the authors concluded.
