Trends in Financial Market Concentration and Their Implications for MarketStability

[...]Our analysis of how U.S. financial market structure haschanged over the last decade produces more definitiveconclusions. Using firm-level data from a variety of sources, including data collected by central banks, we document that inaggregate, most U.S. wholesale credit and capital markets areonly moderately concentrated. Concentration in most globalover-the-counter (OTC) derivatives markets is low, thoughrising. Overall, concentration trends are mixed, rising insome markets and falling in others. Given the rise in bankconcentration at the national level, we view the moderate andmostly stable levels of concentration at the individual marketlevel as surprising. We also find that linkages across markets have increased since the late 1990s as more second-tier firmshave ventured into other markets. The stability implications ofincreased cross-market linkages are mixed; the probability ofdisruption is lower if firms in multiple markets are morediversified, but contagion across markets may make disruptionmore severe.[...]