Evolution and Heterogeneity among Larger Bank Holding Companies: 1994 to 2010

ver the past two decades, there has been a transformation in the U.S. financial sector. Alongside the deregulation of this industry, financial intermediation has shifted from a bankcentered process to one where nonbanks play an increasing role. Given these changes, questions arise about how banks have adapted and to what degree their traditional roles in financial intermediation have changed (see Cetorelli, Mandel, and Mollineaux [2012]). In this article, I provide a general perspective on this broad question by documenting how banks have evolved in terms of income. I measure the amount by which banks have changed their income-generating strategies in response to the transformation of the U.S. financial sector. Further, I describe the heterogeneity in responses across banks to recent changes in the industry. In this analysis, I focus on bank holding companies (BHCs) because, among banks, the BHC legal form of organization dominates over this period, especially for larger banks. Comparing BHCs over the past two decades is difficult, however, because there has been rapid consolidation. This results in dramatic differences over time in the set of large BHCs (as measured by assets). To control for selection effects and better measure how BHCs have evolved over time, I create a sample related to the top fifty BHCs in 2006. (Section 2 describes how this sample is constructed.)