Big Banks in the U.S. are as big as they are, I suspect, not because market forces, but because size creates political advantages, most importantly an implicit bailout, which lowers the cost of credit. Of course, this clashes with the conventional story about the relationship between business and government — the myth that government serves as a check on monopoly.
Well, now we have a bit of empirical evidence confirming the anecdotal and a priori notion that big government yields bigger banks. Mark Calabria at Cato has posted some data suggesting a correlation: the freer an economy, the lesser the concentration of wealth in the biggest banks.
