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The last decade has witnessed an unprecedented number of mega-mergers in the banking industry: Bank of America s acquisitions of Fleet Bank, MBNA, and U.S. Trust; Bank of New York s acquisition of Mel

The last decade has witnessed an unprecedented number of mega-mergers in the banking industry: Bank of America’s acquisitions of Fleet Bank, MBNA,…

The last decade has witnessed an unprecedented number of mega-mergers in the banking industry: Bank of America’s acquisitions of Fleet Bank, MBNA, and U.S. Trust; Bank of New York’s acquisition of Mellon Financial; and Wells Fargo’s acquisition of Wachovia, to name several of the largest consolidations. Besides growth for its own sake, these superbanks are able to offer one-stop shopping for financial services: everything from savings accounts to home mortgages, investment account, insurance vehicles, and financial planning. In the short run, what are the potential cost advantages of these mergers? Explain.Is a $300 billion national bank likely to be more efficient than a $30 billion regional bank or a $3 billion state-based bank? What economic evidence is needed to determine whether there are long-run increasing returns to scale in banking?Do you think these mergers are predicated on economies of scope?

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