Painting a generally bright picture of U.S. bank consolidation, a study shows mergers improve the efficiency of the payments system while allowing banks to earn profits more efficiently and diversify their loan portfolios, according to Allen N. Berger of the Federal Reserve Board and Rebecca S. Demsetz and Philip E. Strahan of the Federal Reserve Bank of New York.

On the downside, the researchers write, consolidation increases the risk that a bank failure could cause systemic problems and that the government would expand the safety net to keep a really large institution from failing.

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