Reply #19: Bank mergers are costing you

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http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=mktw&guid=%7B1B517155-975B-42B0-82BA-CFE9714FBA45%7D&symbol=

PALM BEACH GARDENS, Fla. (MarketWatch) -- There's more evidence that bank mergers may be bad for your financial health.

A study in the April issue of the Journal of Finance found that in the three years after a merger, competition for loans typically declines. Interest rates the bank charges customers for loans rise significantly and borrowers get smaller loans.

The bottom line of the study by University of California-Los Angeles Prof. Mark J. Garmaise and University of Chicago Prof. Tobias J. Moskowitz: Bank mergers may reduce competition in an area. When there is less competition, loan rates tend to be higher.

The end result is less local construction, lower real estate prices, an influx of poorer households and more property crime. The study's authors conclude that regulators should apply greater scrutiny to mergers affecting delicate and marginal areas.

This is only the latest of many studies that have analyzed the effects of bank mergers. The FDIC Banking Review in January also reported that there is little evidence that bank mergers benefit either consumers or shareholders.

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