In this client report, we assess a franchise-value critical question for banks, especially the regional ones most focused on M&A as a path to greater shareholder return.  A recent column in The New York Times argued that the Trump Administration should take a very tough stand on intra-industry consolidation to reduce the cost of credit and increase saver returns.  This is not a new issue – there was extensive discussion during Dodd-Frank deliberations of ways to limit bank consolidation not only to prevent concentrated economic power, but also to promote competition.  At the same time, many analysts have questioned the HHI index with which the Federal Reserve measures concentration and anti-competitiveness in its own M&A review, arguing most recently that concentration is deeply under-estimated due to institutional cross-shareholdings.  Much research argues that concentration within a sector has significant adverse results, but we have found in our reviews that both the HHI and proposed new concentration measures focus only on traditional banking services and, often, only a subset of them.

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