Local Bank Office Ownership, Deposit Control, Market Structure, and Economic Growth

Abstract

The restructuring of commercial banking has heightened interest in its economic consequences both for the economy as a whole and for those most likely to bear adverse consequences: small businesses, small banks, and rural areas. Most previous research on bank restructuring focuses on changes in bank behavior. In contrast, this paper focuses on the empirical association between local economic performance and changes in local bank market regulation and structure. Findings suggest that mergers or acquisitions of local banks by nonlocal banks need not impair local economic growth, and may even have beneficial effects in rural markets, with the possible exception of farm-dependent areas. These findings are derived from empirical models that relate both shortrun and longrun growth in real per capita personal income to geographic restrictions on bank activity, local bank (deposit) market concentration, local or nonlocal ownership of local bank offices, and local or nonlocal control of local bank deposits.