A discussion of the traditional structure-performance theory and the contestable market theory as they pertain to competition and bank profitability in the banking industry. The author uses data from a sample of Ohio and Pennsylvania banks.

A look at both the reported decline in the share of nonfinancial-sector credit intermediated by banks and the consolidation of the industry into fewer, but larger, institutions, revealing that banks today account for nearly the same share of outstanding household and nonfinancial business-sector...