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The benefits of branching deregulation

  • Jith Jayaratne
  • Philip E. Strahan
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    When the Riegle-Neal Interstate Banking and Branching Efficiency Act went into effect in June 1997, it marked the final stage of a quarter-century-long effort to relax geographic restrictions on banks. This article examines an earlier stage of the deregulatory process-the actions taken by the states between 1978 and 1992 to remove the barriers to intrastate branching and interstate banking-to determine how the lifting of geographic restrictions affect the efficiency of the banking industry. The analysis reveals that banks' loan losses and operating costs fell sharply following the state initiatives, and that the cost declines were largely passed along to bank borrowers in the form of lower loan rates. The authors argue that these efficiency gains arose because better performing banks were able to expand their market share once geographic restraints were erased.

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    Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

    Volume (Year): (1997)
    Issue (Month): Dec ()
    Pages: 13-29

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    Handle: RePEc:fip:fednep:y:1997:i:dec:p:13-29:n:v.3no.4
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    1. Donald T. Savage, 1993. "Interstate banking: a status report," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 1075-1089.
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