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Chain banks and competition: the effectiveness of Federal Reserve policy since 1977

  • Economics
  • Law


Opinions expressed in the Economic Review do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, or of the Board of Governors of the Federal Reserve System. The Federal Reserve Bank of San Francisco's Economic Review is published quarterly by the Bank's Research and Public Information Department under the supervision of John L. Scadding, Senior Vice President and Director of Research. The publication is edited by Gregory 1. Tong, with the assistance of Karen Rusk (editorial) and William Rosenthal (graphics). For free copies of this and other Federal Reserve publications, write or phone the Public Information Department, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco, California 94120. Phone (415) 974-3234. 2 Anthony W. Cyrnak* One-bank holding companies offer numerous financial and organiza- tional advantages to bank owners. To achieve holding company status, however, the owners must satisJY Federal Reserve standards that involve financial, managerial, legal, and antitrust considerations. This paper examines the Federal Reserve's efforts to foster more competitive local banking markets through the application ofa particular antitrust policy. It is concluded that the Federal Reserve's efforts have been largely successful. The one-bank holding company has been a popu- lar form of bank ownership for the past 15 years. From 1970 through 1985 nearly 7,000 applications to form such companies were filed with the Federal Reserve System. Approximately 98 percent of these applications have been approved. Those few applications, however, which were denied by the Federal Reserve were most often disapproved for financial, managerial, or legal reasons. In a small number of cases since 1977, however, disapproval has stemmed from competitive factors. These competition-related cases were disap- proved as part of what has been referred to as the Board's "chain bank" policy. Chain banking is a form of bank ownership in which contr

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