Abstract

We investigate the impact of the formation of the “Big 5” highly concentrated banking market in England and Wales. By 1920 five banks controlled 80% of the deposit base, following several decades of mergers and acquisitions and aggressive branch expansion. Borrowers in the counties that experienced higher bank concentration received smaller loan, had to post more collateral, and were granted loans of shorter duration.In those high concentration counties, the quality of loan applicants had improved, which suggests that it is likely the oligopoly restricted credit, rather than changing the quality of loan applicants. We find signs that bank concentration negatively impacted local economies. Counties with a more concentrated banking system generated lower tax revenues and experienced slower firm incorporation.