Banking across State Lines: Public and Private Consequences
Book by Quorum Books, 1997

Preface
Federal Reserve Board Chairman Alan Greenspan in a speech to the Conference of State Bank Supervisors in April 1994 observed: "I am often bemused when both foreign and American observers compare the U.S. and foreign banking structures, note the uniqueness of the American System and conclude that since the American banking system is so different it should be changed. . . . Our banking system is, in fact, the envy of the world, in part because of its ability to rebound from crises that may well have devastated more rigid banking systems."

Dr. Greenspan's statement is still true as far as it goes, but what he (probably unintentionally) left out of the story is that American banking is being inexorably pushed by economic forces and government regulations towards a system that looks increasingly like the British and the Canadians and most other banking systems around the world--a handful of dominating banks operating hundreds, if not thousands, of branch offices and affiliated businesses worldwide. Industry statistics tell the story: (1) the total number of U.S. banks has fallen in less than ten years from more than fourteen thousand to less than ten thousand; (2) the number of independently owned banks has fallen by more than 20 percent over the same period; (3) branch offices of existing banks have soared to more than sixty-five thousand and automated teller machines (ATMs) in stores and shopping centers now exceed one hundred thousand; (4) in only fifteen years, from 1980 to 1995, forty-nine states passed legislation allowing banking firms from other states to enter their territory; (5) more than three hundred interstate companies now control over a quarter of U.S. domestic deposits, a percentage that has tripled in less than a decade; (6) the one hundred largest U.S. banks now account for more than 70 percent of the public's deposits compared to less than 50 percent in 1980; and finally (7) in more than a dozen states interstate banking firms now control half or more of the public's deposits.

In brief, American banking has entered an era of accelerating consolidation of the banking businesses--a trend toward many fewer but much more dominating banking firms. With the passage of sweeping federal legislation in 1994, the process of crossing state lines with full-service branches can begin legally in 1997--something that federal law and the laws of most states have expressly forbidden for half a century or more. The key issue for the public and for bankers themselves is: What does this mean for customers and for the banks they patronize? Do the claims of interstate banking's proponents-greater customer convenience through easier access to financial services (especially for the roughly sixty million people who live in one state and commute to work in another), more and improved financial services, greater bank safety and stability, and more efficient regulation and control--have any evidence to support them?

And what of the potential costs and disadvantages? Without argument, the public's deposits are being concentrated in fewer banks at both national and state levels and the service fees reported in recent national surveys of the industry are rising. What happens to bank stockholders and employees when these takeovers occur? Will the outcome be like the huge BankAmerica-Security Pacific merger that resulted in about three thousand fewer employees and close to five hundred fewer full-service offices to serve the public? What about the states who could lose millions of dollars in tax revenues as local banking firms are consolidated into interstate companies headquartered in only a handful of states (including California, New York, North Carolina, Florida, Massachusetts, Minnesota, Ohio, Illinois, and Wisconsin)? And what about small banks, who will be almost certainly under greater and greater pressure to survive? What are their chances for success in the future?