The Potential Benefits and Costs of Interstate Banking
Will interstate banking and branching bring substantial benefits to the public and to American banking as a whole, or result in substantial costs and risks to bank customers and a burden to an industry caught in the midst of change? No one knows for sure, but several ideas have emerged about what the future may bring to American banking and to the businesses and individuals it strives to serve. This chapter looks at the expected benefits and costs that may lie ahead as the industry experiences one of the most basic structural changes in its history.
In a 1993 study conducted by the General Accounting Office (GAO)-- a prelude to the consideration of new interstate banking legislation by the U.S. Congress--the GAO ( 1993) concluded that interstate banking activities have contributed to a substantial consolidation of the U.S. banking industry and have resulted in an increase in overall industry concentration. However, the GAO could find no direct relationship between increased interstate banking activity and changes in banking concentration at state and local levels (measured by the proportion of local banking assets held by the three largest banking firms). To the contrary, the GAO argued that the roles played by smaller banks (defined as those under $1 billion in assets) would