number of banks had fallen to just under 9, 100, and the number of banking organizations to not quite 7, 200. this 42 percent decline in the number of banking organizations was due in part, but only in part, to the large number of bank failures in the late 1980s and early 1990s. a more important factor was mergers among healthy banks. since the early 1980s, it has not been unusual to see 400 or more mergers among healthy banks each year. while mergers have occurred, and continue to occur, among banks of all sizes, i would emphasize three aspects of the current bank merger movement. first is the high incidence of “ mega mergers, ” or mergers among very large banking organizations. several mergers of the last few years have been either the largest at the time, or among the largest bank mergers in u. s. history. examples include the combining of chase manhattan and chemical bank, wells fargo and first interstate, nationsbank and barnett, and, most recently, first union and corestates. [UNK] second, despite all of the merger activity, a large number of medium to small banks remain in the united states. moreover, by most measures of performance these small banks are more than a match for their larger brethren for many bank products and services. indeed, when a mega merger is announced it is not uncommon to read in the press how small banks in the affected markets are licking their chops at the business opportunities created thereby. research seems to support their optimism. lastly, while the overall number of banking organizations has fallen since 1980, this does not mean that new, or de novo, entry has not occurred. from 1980 through 1997 some 3, 600 new banks were formed in the united states. my bottom line? the u. s. banking structure is highly dynamic, is adjusting to a variety of forces, and defies easy generalizations. the current wave of bank mergers has led to a substantial increase in bank concentration at the national level. for example, the percentage of banking assets controlled by the top 10 banking organizations rose from about 22 percent in 1980 to 34 percent in 1997. the percentage held by the top 25 increased from 33 to 53 percent. are these increases in national concentration a public policy concern? in my view, the answer to this question is “ no, ” at least at this time, because virtually all the evidence we have strongly suggests that competition problems almost always arise in banking at the local level. that is, to the extent that banks are able to exert

small banks is expected to remain. future directions in bank supervision what do all of these changes mean for how we supervise and regulate banks? analysis of competition clearly, as the banking industry consolidates we need to maintain competitive markets. competitive markets are our best assurance that consumers receive the highest quality products at the lowest possible prices. as i discussed earlier, there are many reasons to believe that in recent years competition has increased greatly in markets for a large number of financial [UNK] products and services. this is true for many products purchased in local, regional and national markets. however, in some cases we still observe potential competitive problems with a proposed bank merger. fortunately, the antitrust laws, as written into the banking statutes, give us the means to maintain competition in such situations. these laws require that the board approve only those mergers that are not expected to substantially harm competition. when implementing this policy, the board may require changes to a merger proposal, and may even deny an application, if the merger or acquisition would result in a highly concentrated market, or an excessively large increase in concentration. as i indicated a few minutes ago, the focus of our analysis is normally on local retail markets for banking products and services. over the past year or so, quite a few applicants have pushed very hard at the board ’ s frontier for approving merger applications. some applicants appear to have held the view that almost any merger could be approved, even if it violated the screening guidelines that both the federal reserve and the department of justice use to decide which mergers require close examination. in response, the board has occasionally felt compelled to remind applicants, especially those proposing a merger that would affect a large number of local markets, that substantial changes in market concentrations will receive careful review. moreover, when mergers would exceed the screening guidelines, “ mitigating ” factors must be present. by mitigating factors i mean conditions that tend to create a more competitive market than is suggested by market concentration alone. these would include characteristics that make a market highly attractive for new entry, or situations where nonbank providers of financial services are unusually strong. the greater the deviation from the screening guidelines, the more powerful and convincing the mitigating factors must be. i have been particularly concerned with cases where a large number of local markets are affected. in such cases, even if the adverse effect is fairly small in each of several local markets, it seems to me that the cumulative, or total, adverse effect might be significant. thus, when a large