Dynamics of Banks’ Market Concentration in USA

Keywords

Banks’ market concentration, U.S. banks’ asset sizes, Empirical analysis, Generalized Pareto distribution, Kolmogorov-Smirnov test

Abstract

Banks’ market concentration has considerably changed over the years preceding the 2008 financial crisis and also as a result of the subsequent defaults, bailouts and acquisitions. The connection between banks’ market concentration and the stability of the banking system needs to be thoroughly studied, in order to prevent future crisis. As a starting point, an analysis of the banks’ market concentration over the years can be helpful for both regulators and legislators. In this paper we study the dynamics of the U.S. banks’ total assets between 1976 and 2010. We fit different theoretical distributions to the data, examining also the goodness of fit and providing the estimated parameters. We find that the Kolmogorov-Smirnov test rejects the hypothesis that the entire data from March 1983 or March 1998 fits a generalized Pareto distribution, a normal distribution or a log-normal distribution. For March 1998, March 2003 and March 2008 we also perform a cross- sectional analysis, since the parameters of the fitted distribution change by size. The Kolmogorov-Smirnov test does not reject the hypothesis that the modified samples fit a generalized Pareto distribution, when the extreme deciles are taken out.

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