Prospective Rural Effects of Bank Deregulation

Congressional legislation in 1988, not passed but still under consideration, would repeal provisions of the National Bank Act of 1933, known collectively as the Glass-Steagall Act. The proposed legislation would expand the powers of commercial banks to underwrite securities both in the bank and through a bank holding company affiliate. These powers may generally encourage greater bank operating efficiency and reduce portfolio risk through diversification. Rural bank participation, however, is expected to be low because most rural banks are small, and they have relatively little experience with securities markets. Little net increase in rural growth is expected because efficiency gains are likely to be small. Few benefits of new bank powers may accrue to rural banks to offset insolvency risks and increased competition from innovative urban banks.