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The Interstate Banking Landscape: Legislative Policies And Rationale

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  • LARRY A. FRIEDER

Abstract

Expansion across state boundaries has been the dominant change in the structural landscape of banking. Forty‐one states and the District of Columbia now permit full‐service interstate banking. This paper reviews and analyzes these laws and their related provisions. Geographical liberalization is found to be mostly pro‐competitive. Regional reciprocity statutes dominated the interstate banking landscape until mid‐1985. Of the first 18 laws, 12 were regional. However, the regional approach peaked quickly, and most remaining states enacted nationwide laws—either immediate nationwide bills or regional bills that “trigger” to the nationwide level at a certain date. Presently, 27 of the 42 laws are nationwide. At least 9 states that initially selected regional laws are soon expected to switch to a nationwide approach. Regional banking compacts seemed inherently unstable and difficult to establish. Only the Southeast successfully established a stable regional banking zone. The location of control over the nation's banking assets is being restructured. In some states with well‐capitalized holding companies aggressively exploiting the new laws, banks have grown in size. Other states that were slow to pass legislation, or whose banks are in no financial position to make acquisitions, have lost rank. After a relatively short time, the federal government finally may legislate on the interstate banking issue. Pressure to do so would derive from the different banking structures and regions, problematic competitive dimensions, banks' supervision and regulation necessities, and eventual interstate branching proposals.

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  • Larry A. Frieder, 1988. "The Interstate Banking Landscape: Legislative Policies And Rationale," Contemporary Economic Policy, Western Economic Association International, vol. 6(2), pages 41-66, April.
    • Handle: RePEc:bla:coecpo:v:6:y:1988:i:2:p:41-66
    DOI: 10.1111/j.1465-7287.1988.tb00285.x
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    References listed on IDEAS

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    1. Benston, George J & Hanweck, Gerald A & Humphrey, David B, 1982. "Scale Economies in Banking: A Restructuring and Reassessment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 435-456, November.
    2. Larry A. Frieder & Vincent P. Apilado, 1983. "Bank Holding Company Expansion: A Refocus On Its Financial Rationale," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 6(1), pages 67-81, March.
    3. Constance R. Dunham, 1986. "Regional banking competition," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 3-19.
    4. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-644, November.
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    1. Elijah Brewer & William E. Jackson & Julapa Jagtiani, 2000. "Impact of independent directors and the regulatory environment on bank merger prices: evidence from takeover activity in the 1990s," Working Paper Series WP-00-31, Federal Reserve Bank of Chicago.

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