Bank Structure Conference Series

A Look Back

Since the early 1960s, the Federal Reserve Bank of Chicago's conference on bank structure and competition has served as a forum for academics, regulators and industry participants to debate current issues affecting the financial services industry. Each year, the purpose of the conference is to continue that tradition. This retrospective on the history and evolution of the conference reviews the past four decades of conferences.

The primary motivating factor for the conference was the passage of the 1960 Bank Merger Act and the U.S. versus Philadelphia National Bank supreme court decision. Suddenly, bank regulatory agencies were required to consider competitive factors in addition to banking factors when evaluating bank merger applications. Each of the Federal Reserve Banks was encouraged to survey the existing literature on bank structure and develop its own research agendas on these issues.

In January 1963, the Chicago Fed held a meeting with local academics to discuss current research in the microeconomics of financial markets and to encourage future research efforts. About 20 academics met and, following a thorough analysis of the issues, agreed that a follow-up meeting was merited. Those follow-up meetings continue to this day.

In the early years of the conference, the primary focus was on evaluating bank performance. How did one measure competition? What was the relevant banking market? What was the relationship between market structure and bank performance? What were the effects of bank mergers? While the issues facing the banking industry have obviously changed through the years, it is amazing how many of these traditional, fundamental issues have continued to resurface as conference themes

During the early 1970s, the emphasis of the conference was on the need for industry deregulation and potential risks imposed by existing regulatory arrangements. The costs and benefits of restrictions such as Regulation Q, service limitations and bank product and geographic limitations generated intense annual debates. These debates preceded by many years the actual relaxation of the regulatory restrictions.

The late 1970s witnessed problems within the industry that led the conference away from its emphasis on deregulation and improved industry efficiency toward a broader array of issues including risk management, measurement of bank soundness and the causes and consequences of bank failures. Perhaps most importantly, these years also witnessed a movement toward an analysis of the broader financial services industry instead of banking per se. Once again, the conference debate preceded the actual implementation of public policy by a number of years. For example, during this period conference sessions were organized on topics such as community reinvestment, gender discrimination in lending, pricing of Federal Reserve correspondent banking services and analysis of the reserve requirement burden.

The overriding issues during the 1980s were the industry safety net, distortions resulting from its mispricing and alternative means for both financial institutions and regulators to better manage risk. Sessions on moral hazard issues were numerous. There was significant emphasis on the need to, when possible, replace or supplement regulatory discipline with market discipline. The merits of alternative regulatory structures and optimal means to reprice the safety net were debated. However, the conference continued to feature analyses of the potential benefits of deregulating product powers and geographic expansion. It was also during the 1980s that the conference expanded to its current format, which combines academics, regulators and industry participants. This combination of financial industry researchers and practitioners has made for better, more relevant policy discussions.

In recent years, the conference emphasized the changing nature of the financial services industry and the increase in nonbank competition. Conference themes focused on banks' role in the broader financial industry, strategic and financial market innovations, the impact of the Gramm–Leach–Bliley Act, the structure of the financial safety net, the behavior and regulation of banks over the business cycle, the means to address recent corporate governance problems, innovations in real estate markets and the potential impact on bank performance and the advantages and disadvantages of mixing banking and commerce (following the Wal-Mart industrial loan corporation application).