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THE ECONOMICS OF THE PRIVATE MARKET

Prospective Changes in Market Share of U.S. and Foreign Banks

As noted, the agenting market share of U.S. banks has increased substantially during the past fifteen years. During interviews, market participants offered two explanations. First, as banks have lost commercial and industrial loan business to other lenders or markets, they have become increasingly interested in selling a broad array of financial services to corporations. Many have also reorganized their operations, converting loan officers into relationship officers that operate more on the investment bank model of customer relationship management. This reorganization has increased banks' efficiency at identifying potential clients for private placement agenting and at winning their business.

Second, according to some participants, investment banks had placed a lower priority on their private placement businesses during the mid-1980s and instead emphasized lines of business related to mergers and acquisitions. If true, this change may have provided banks with a window of competitive opportunity that they exploited.

Foreign banks began entering the agenting market only during the past few years. Their entrance was coincident with two events: an increase in issues of private placements by foreign borrowers and a substantial increase of foreign banks' share of the market for commercial and industrial loans. Foreign bank agents may have an advantage in winning the business of foreign borrowers. Relationship officers of foreign banks can probably market private placement agenting services in much the same way, and with much the same effectiveness, as relationship officers of U.S. banks.

Prospective changes in market share are difficult to assess. Having learned to exploit their agenting opportunities more efficiently, banks are unlikely to lose expertise or to abandon the private market.  U.S. banks may gradually lose market share if their share of all corporate financial services declines. They may gain market share if their efficiency continues to increase. Foreign banks seem likely to continue to have some presence in the agenting market, but beyond that their prospects are impossible to assess. Banks will probably not come to dominate agenting because investment banks are intent on remaining competitive.

The Role of Regulation

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