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Implications for Developing Countries



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The Global Bank Merger Wave Implications for Developing Countries Gary A Dymski Department of Economics University of California Riverside Riverside CA 92521 USA dymski mail ucr edu April 8 2002 1 Introduction This paper reconsiders the causes and implications of the global bank merger wave especially for developing economies Most academic studies of this bank merger wave have focused on the U S Studies of cross border mergers Demirg Kunt Levine and Min 1998 Group of Ten 2001 largely consider the developed economies with just a few Claessens and Jansen 2000 Clark Cull Peria and Sanchez 2001 examining cross border financial mergers in developing economies All of these studies almost invariably rely on two maintained hypotheses first that a set of common micro economic forces economies of scale and scope unleashed by deregulation and driven by technical change underlies this global financial merger wave second the U S merger wave constitutes the global paradigm The links between mergers efficiency and U S experience are demonstrated via the case of the large U S banks for after undergoing continuous consolidations since 1981 these banks are more profitable than other regions large banks Table 1 illustrates this point using profits per 1000 of assets as a benchmark The fact that the largest U S banks have recently increased in size relative to the U S market while the largest banks in other national areas are smaller relative to their national markets Table 2 suggests that mergers elsewhere may lead to efficiency gains in other nations These maintained hypotheses suggest that the largest and most efficient banks especially those from the U S should be given full scope to engage in global mergers that is in consolidations involving cross border acquisitions of banks Ag nor 2001 This will lead to a global homogenization of banking dominated by efficient institutions Berger DeYoung Genay and Udell 2000 develop an argument of precisely this sort they assert that only the



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