A study forthcoming in the Federal Reserve Bank of New York’s Economic Policy Review concludes that there is no pervasive pattern in the past decade of high or increasing concentration in financial markets.
Authors Nicola Cetorelli, Beverly Hirtle, Donald Morgan, Stavros Peristiani, and João Santos, in “Trends in Financial Market Concentration and Their Implications for Market Stability,” find that most wholesale credit and capital markets in the United States are only moderately concentrated, and concentration trends are mixed—rising in some markets, falling in others.
Consistent with past academic studies, the authors find an ambiguous relationship between market concentration and market instability. They argue that the risk of instability should a large player exit the market depends not just on market concentration, but also on the speed at which other firms can substitute for the exiting firm.
Nicola Cetorelli is a senior economist and Beverly Hirtle a senior vice president at the Federal Reserve Bank of New York; Donald Morgan, Stavros Peristiani and João Santos are research officers at the Bank.