^^ United States

)|) Department of

Agriculture

Economic

Research

Service

Rural Development

Research Report

Number 75

C2

Deregulation and the

Structure of Rural

Financial Markets

Daniel L. Milkove

Patrick J. Sullivan
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Deregulation and the Structure of Rural Financial Markets. By Daniel L

Milkove and Patrick J. Sullivan, Agriculture and Rural Economy Division,

Economic Research Sen/ice, U.S. Department of Agriculture. Rural

Development Research Report No. 75.

Abstract

Rapid geographic deregulation of the financial services industry will probably

continue in response to technological advances and legislative actions at the

State and possibly Federal levels. The ultimate effect of bank deregulation

on rural financial markets remains uncertain. Some analysts fear that rural

areas will be stripped of their locally owned community banks and left to the

whims of large regional and national banking firms. Others argue that

geographic deregulation will benefit rural borrowers by increasing the range

of financial services provided by banks operating in rural communities.

Keywords: Commercial banks, rural banks, bank deregulation.

Acknowledgments

We received useful comments from Douglas Duncan, Stephen Hiemstra, and

James Mikesell of USDA's Economic Research Service. In addition, Lindsay

Mann provided extensive editorial assistance while preparing this manuscript

for publication.

Note

Use of firm names in this report is for identification only and does not

constitute endorsement by the U.S. Department of Agriculture.

1301 New York Avenue, NW.

Washington, DC 20005-4788 February 1990
Contents

Page

Summary

Fewer Rural Banks Not Affecting Financial Services 2

Structure of Rural Banking

Goals of Deregulation 4

Importance of Local Ownership 5

Sources of Rural Credit . 6

Structure of the Commercial Banking System . 8

Bank Branching Patterns by State 10

Bank Holding Company Characteristics by State 12

Joint Role of State and Federal Regulations . 14

Interstate Banking Is Expanding 16

Trends in Bank Structure

Recent Trends Suggest Future Possibilities 18

Changes in the Number of Banks 19

Bank Failures 22

Bank Mergers and Acquisitions 24

The Growth of Holding Companies 25

Interstate Banking Activities 26

Rural Banks and Bank Markets During the 1980's

Current Structure of Banking in Rural America 28

The Changing Structure of Rural Banks and Bank Markets 30

Changing Rural Bank Services 32

Future Trends in Rural Banking

Rural Banking in a Deregulated Environment 34

References 36

Appendix A: Federal and State Banking Legislation 37

Appendix B: Data Sources and Concepts 39

Appendix Tables 40
Summary

Fewer Rural Banks Not Affecting Financiaf Services

Recent changes in banking legislation and regulation have aimed to strengthen the

industry and to provide consumers with more services and more choices among

providers.

Geographic deregulation of the financial services

industry will probably continue its rapid pace in

response to technological advances and tegislatjve

actions at the State and possibly Federallevels.

How bank deregulation will affect rural financial

markets is uncertain, but some analysts fear that

locally owned rural banks will disappear, leaving

rural communities at the mercy of large, indifferent

regionai and national banking firms. Others predict

that geographic deregulation will expand the range

of financial services provided by banks operating in

rural communities.

This report examines the structure of rural bank

markets, determines how this structure has changed

during the 1980's, and discusses probable scenarios

for the future of the rural banking system. The

authors have focused on the banking systems of

those States that have recently expanded bank

branching privileges, permitted interstate banking, or

both. The number of banks is declining, as losses

due to mergers and failures have surpassed the rate

at which new banks are chartered. Ownership of

many other banks is also changing hands as

holding companies acquire additional banks both

within and beyond their home States. But, most

banks that disappear become branches of other

banks, so that financial services within most

communities are maintained. When absorptions

result from bank holding companies taking

advantage of new State branching regulations by

converting their bank affiliates to branch offices,

bank customers often do not notice any change.

For rural Gommunities, holding company acquisitions

may amount to little more than the exchange of one

outside owner for another.

The small size of most banks headquartered in rural

counties suggests that the array of financial services

available to rural residents and businesses may be

somewhat limited. But examining rural banking

markets more closely^ both by incorporating branch

offices and by identifying holding company linkages

between banks, indicates that a sizable number of

rural counties have access to services and lending

experience associated with large banks. Some rural

banks are affiliates of large, multibani< holding

companies. And, in States with liberal branching

laws, large urban banks may have branches in rural

communities. A growing number of rural counties

are served by a combination of local and urbanbased banking firms. These communities may

receive the benefits of both wider services from

large banks and greater local knowledge available

from locally owned community banks.
structure of the Report

Question:

Will bank deregulation cause disappearance of locally owned rural

banks and increased reliance on regional and national banks?

Approach:

1. Examine structure of rural bank markets

2. Note changes during 1980*s

3. Discuss likely scenarios for the future

Main Conclusions

1. Number and ownership of rural banks declining due to

—mergers

—failures

2. Financial services maintained, due to

-bank holding companies using State regulations to

turn banks into branches

—failed banks becoming branches of other banks or

restarting under new owners

3. More rural communities being served by a combination of local

and urban banks
Structure of Rural Banking

Goals of Deregulation

Recent changes In banking legislation and regulation have aimed to strengthen the

Industry and to provide consumers with more services and more choices among

providers.

Commercial banks play a prominent role in

supplying credit and financial services to the

business sector, especially in rural areas that lack

easy access to other financial institutions. Financial

deregulation and recent innovations in

communications and information technology have

increased rural links with national financial markets,

but local commercial banks remain important to the

efficient operation of many rural economies. Small

businesses rely heavily on their local banks for the

credit needed to finance daily operations and to

modernize, expand, and transfer ownership. Thus,

factors affecting the structure of rural bank markets

and the operations of banks serving rural America

directly affect rural development prospects.

During the 1980's, the banking industry changed

markedly in response to economic adjustments,

technological developments, and regulatory changes

at the Federal and State levels. Regulations

controlling rates and types of deposits offered by

banks were largely eliminated at the beginning of

the decade. The recent rash of bank failures

resulting from troubles in the agricultural and energy

sectors has raised the public's concern for the

safety of bank deposits. Geographic restrictions

governing where banks can operate have also been

relaxed in many States, freeing large banks to move

across State lines and encouraging mergers among

bank firms. Congress is considering legislation that

would let commercial banks compete with

investment banking, insurance, real estate, and

securities firms by offering services that banks have

been largely prohibited from providing since the

1930's.

Deregulation is meant to strengthen the financial

services industry by increasing competition and

encouraging greater diversification, but the benefits

are not without costs. Small depositors now enjoy a

range of savings options offering attractive interest

yields, but borrowers find interest rates on their

loans fluctuate wildly with national and international

events. Proposed legislation to broaden bank

powers may help stabilize bank profits, but some

fear this would further threaten the safety and

soundness of a banking system that already seems

rife with risks.

Of special concern to rural areas are the potential

effects of geographic deregulation. The ownership

and control of commercial banks has traditionally

been a concern of rural policymakers. Events of the

1980's caused some worry that the banking system

will become too centralized as control of rural banks

shifts from local investors to large banks and bank

holding companies. This report addresses this

issue, emphasizing the effect recent regulatory

changes have had on rural banks and bank

markets.
Structure of Rural Banking

Importance of Local Ownership

Locally owned rural banks may provide personalized service, but some large, urbanbased banking companies have supported rural markets and provided security and

strength based on their size.

Some individuals fervently believe that locally owned

and operated community banks are critical to the

future economic development of rural areas.

Because these bankers know the local residents and

their businesses, they can confidently agree to loans

that would never meet the rigid requirements of

large, urban-based banking firms. Instead, the

argument goes, branches or holding company

affiliates of outside banking organizations would

transfer rural deposits for use in cities where lending

opportunities are better understood and seemingly

more profitable.^

Dunham argues that small community banks export

significant amounts of local funds (about 43 percent

of their assets), primarily through nonloan

investments such as the purchase of Federal

Government securities, sales of Federal funds (a

national market for short-term loans to other banks),

and deposits held at larger correspondent banks to

pay for check clearing and other services (7).^

Other individuals stress the ability of large banks to

provide a wider variety of loan products and other

financial sen/ices, and the implicit safety that arises

from geographic diversification. As traditional rural

industries decline, outside banks may be better

positioned to help residents start new businesses

that would not be familiar to community banks. By

serving many localities, problems in one industry

(such as agriculture) are less likely to harm the bank

to the point of disrupting its ability to meet other

local credit demands.

Instead of fearing the demise of the rural community

bank, they worry that large banking organizations no

We use "bank firm" and "bank organization' interchangeably

in this report. Independent banks, one-bank holding companies,

and multibank holding companies each count as a single banking

firm regardless of how many bank branches or bank affiliates they

control. We assume that the total organization, rather than any

particular office, determines the range and quality of financial

services provided to members of the community or communities

served by the banking firm.

^ Italicized numbers in parentheses identify sources crted in the

References at the end of this report.

longer have a need or interest in gaining a direct

rural presence. Loans and deposits are now bought

and sold in national and international financial

markets. The labor-intensive work of serving

low-density rural markets may be left entirely to

small community banks, thus depriving rural

entrepreneurs of the expertise enjoyed by urban

entrepreneurs with easy access to large banking

organizations.

Anecdotal evidence supports both sides, but the

wider truth is simply not known. Examples exist of

highly profitable community banks that ignore the

credit needs of their communities in favor of safe

investments, such as Government securities (3). On

the other hand, many small community banks failed

during the 1980's because they tried too hard to

accommodate long-time borrowers experiencing

financial problems. Large branch banking firms in

Arizona have furthered rural development by

transferring funds to those rural communities

experiencing rapid economic growth (4). But,

several large Midwestern multibank holding

companies have been widely criticized for

abandoning their rural borrowers during the height

of the agricultural finance crisis, in favor of more

lucrative investments.

Is the loss of local decisions more than balanced by

access to sen/ices available from large, diversified

financial firms? Data limitations preclude us from

answering this important question. Instead, we

concentrate on the more basic question of whether

rural bank ownership is being affected by

deregulation and other forces causing change in the

banking industry. We describe the rural financial

system, explore the evolution of banking structure,

review the current configuration of rural bank

markets, and speculate on future changes. We also

focus on the ownership of rural banks-are rural

banks independent firms, or are they part of larger

banking organizations headquartered elsewhere?

Urban-based banks play an important and

increasing role in rural banking markets, but the

evidence to date suggests that rural-based banking

firms can coexist with their larger cousins and

continue to serve rural credit needs.
Structure of Rural Banking

Sources of Rural Credit

Rural borrowers can get credit from many sources, Including savings and loan

associations and the Farm Credit System, but commercial banlcs continue to dominate.

A variety of private and public financial organizations

serve rural firms and households. Commercial

banks are responsible for the bulk of rural business

credit, but other types of lenders have large market

shares for specific services, and some have access

to national money markets that may free up local

funds for lending by rural banks.

There are fewer savings and loan associations (also

called "S&L's" or "thrifts") than banks, and their

numbers are declining rapidly because of the

industry's well-publicized difficulties. But thrifts have

generally operated under less restrictive branching

regulations. When S&L's concentrated on residential

mortgage lending, banks were free to take care of

other rural credit needs. S&L's were given broader

banking powers that might have brought the

benefits of expanded financial competition to some

rural communities. However, the 1989 bailout

legislation aims to prevent future problems by

outlawing certain activities and providing incentives

to return S&L's to mortgage lending. Mutual

savings banks, another type of thrift, are often large

but concentrated in New England. Credit unions

are typically quite small, but they are becoming

more competitive as they expand both the range of

financial services offered and the sorts of common

bonds required to define permissible pools of

members.

The Farm Credit System (FCS) consists of a

specialized set of agricultural lenders. Although it

directly benefits farm borrowers, other borrowers are

aided in that FCS obtains its loan funds from

national money markets. Thus, local bank deposits

remain available for other purposes. This benefit is

potentially greatest in heavily agricultural regions

that are sen/ed primarily by independent unit banks.

Insurance companies have similar effects when they

invest in farmland mortgages.

Other sources of credit include merchant and dealer

credit, finance companies, and Government

agencies, such as the Farmers Home Administration

and the Small Business Administration. Government

programs are often drafted to serve borrowers that

do not qualify for loans from private lenders.
Sources of Rural Credit

Commercial banks (dominant source)

Savings and loan associations (few in number and declining)

Credit unions (usually small)

Mutual savings banks (concentrated in New England)

Farm Credit System

Insurance companies

Merchant credit

Finance companies

Government agencies such as the Farmers Home Administration

and the Small Business Administration
Structure of Rural Banking

Structure of the Commercial Banking System

State laws governing branching and ownership determine the structure of a State's

commercial banking industry.

The Nation's commercial banks operate within a

dual banking system, with banks chartered by both

the States and the Federal Government. Each State

sets up its own regulations to control the ownership

and branching structures of State-chartered

commercial banks. Federal regufators then give the

same authority to banks with national charters. This

dual system has led to wide variation among States

in the number of banks and bank branches and in

the structure of bank ownership. Over 14,000

commercial banks insured by the Federal Deposit

insurance Corporation (FDIG) were headquartered in

the United States in 1986, ranging from one-office

independently owned banks to large multibank

organizations operating thousands of offices and

controlling billions of dollars in assets.

In describing the structure of the banking system,

two characteristics must be examined, branching

and ownership. Branching structure refers to

whether or not the bank operates more than one

full-sen/ice bank office and, if so, the geographic

coverage of its branching network. Permissible

branching structure is regulated by State law.

Ownership structure refers to whether the bank is an

independently owned and operated firm or is an

affiliate of a bank holding company (HO).

States are usually divided into three groups

determined by branching: unit banking (no branch

offices permitted), limited branching (branches in

designated areas), and statewide branching

(branches anywhere). Because these terms are

imprecise, the distinctions between the rules

governing banks in each category are not always

striking. For example, some limited branching

States allow branching across contiguous county

lines or within fairly liberal mifeage restrictions.

Some statewide branching States have tighter

restrictions on new branches, although they allow

statewide bank mergers.

To better reflect the diversity of the commercial

banking system, table 1 and appendix table 1

further categorize limited branching and statewide

branching States. "Very limited branching" means

banks can operate branch offices only in their home

county or within a few miles of their headquarters.

"Less limited branching^ allows banks to operate

branches in contiguous counties or establishes a

less restrictive distance constraint. States that allow

statewide branching are divided into those that allow

the creation of new ("de novo") branches and those

that require banks to acquire branches through

mergers.

An HC is a firm that owns at least one bank and

possibly other subsidiaries in related fields such as

mortgage banking, discount stock brokerage, and

consumer finance. Taking on the HC format

subjects a bank to supervision by the Federal

Reserve Board, but in return the HC may use

nonbank subsidiaries to enter otherwise ineligible

businesses, gain tax advantages, and issue certain

forms of securities to raise additional funds for

expanding its bank<s). In particular, an HC can

issue commercial paper (banks cannot) and use the

proceeds to purchase certificates of deposit (CD's)

from its bank affiliée (8).

A multibank holding company (MBHC) owns at least

two bank affiliates. The banks are nominally

independent, with separate charters and boards of

directors. But, the holding company sets policy and

may choose to keep its affiliates on a leash as short

as that given to bank branches. About two-thirds of

all banks are now controlled by one-bank HC's (an

HC with a single bank affiliate) or MBHC's.
Table 1 —Bank branching patterns, June 30, 1986

State Banks withbranching law States Banks No

branches

Intracounty

branches

Intercounty

branches

Unit banking

Number6 3,491 82

-Percent

17 1

Very limited branching 11 5,524 47 46 7

Less limited branching 6 1,753 34 48 18

Statewide (by merger) 6 1,644 46 43 12

Statewide (unlimited) 22 1,750 24 43 32

Total 51 14,162 51 38 11

Note: Includes District of Columbia. Appendix table 1 presents State-level data. Total

percentages may not sum to 100 due to rounding.

Source: {10).

Structure of the Commercial Banking System

• Branching characteristics: Refers to the number of full-service

offices and their geographic coverage by State

-Unit

—Very limited

— Less limited

-Statewide (by merger)

—Statewide (unlimited)

• Ownership characteristics: Refers to the presence of bank

holding companies (Hb's)

— Independent (no HC)

-Affiliate

One-bank holding company (OBHG)

Multibank holding company (MBHC)
Structure of Rural Banking

Bank Branching Patterns by State

Most states permit branching, but often with some restrictions.

The regulatory trend has been toward less restrictive

intrastate bank branching, but diversity across

States persists and is not likely to end anytime soon

(table 1). Amel reports that of the 219 changes in

branching regulations he identified since 1960, only

9 tightened geographic restrictions; the remainder

eased geographic restrictions, although often with

minor results (7), Since 1960, 22 States have

significantly liberalized their branching restrictions,

with most of these changes coming within the last

10 years (figs. 1 and 2). Appendix table 4 provides

more complete detail on which States changed their

bank branching legislation and when. The trend

toward statewide branching should be accelerated

by the Comptroller's 1987 decision that grants

national banks branching authority equivalent to ttiat

held by a State's S&L's.

Analyzing legislative changes can lead to ambiguous

conclusions. Amel argues that changes such as

going from unit banking to very limited branching

are insignificant, although we chose to include all

changes among the five branching categories (7).

The Conference of State Bank Supervisors groups

States by the type of branching which is prevalent,

rather than legal (6). Bank structure changes

slowly, and in some cases decisions made by State

banking regulators can thwart efforts by bank

managers to take advantage of "legally permitted*

activities. For example, the Georgia banking

commissioner has the authority to let holding

companies operate new acquisitions as branches of

the lead bank.

About half of the banks in mid-1986 had no branch

offices. The other half operated one or Tnore branch

offices in addition to the banlc's headquarters.

These t)ranehing networks varied frorn one

additionat flmited-servlce facility located within a mile

of the bank's headquarters to hundreds of fullservice branches located throughout the State. The

relative number of sirigle-office banks-generally

declines and the number of banks with multicounty

branching networks rises as branching restrictions

are eased (app.t^ble f). The exception to this

trend is the group of States that allow staEtewide

branching only through mergers. The banking

systems of these States more closely resemble the

systems of States with limited branching than the

systems of States that allow unrestricted statewide

branching.

The variability within commercial banking indicates

that State laws only partially explain the structure of

the banking system. Exclusions, exceptions, and

other loopholes ifi the banking statutes enable some

commercial banks in unit-banking States to operate

branching networks. Tradition, the historical

development of the State's banking system, and the

economics of the financial services delivery system

allow small, one-office banks to account for a sizable

number of the banks operating in States with a long

tradition of statewide branching. The banking

systems of States that have recently liberalized their

branching restrictions often differ from the systems

of States that have a longer branching tradition.

Bank managers adjust slowly to changes in banking

restrictions, and the opportunities for geogiraphic

expansion are often limited in mature economies.

Thus, changes in State law can have a pronounced

effect, but changes tend to be gradual and, to a

certain extent, unpredictable.

10
Figure 1

State bank branching laws as of December 31,1959

Source: (1,3).

Figure 2

State bank branching laws as of December 31,1986

Note: Fig. 2 classifies States according to laws that were scheduled to take

effect by the end of 1986.

Source: (1, 3).

Untt banking

Very limited brancNng

1.088 limHed branching

Statewide by merger

Statewide branching

Unltbanidng

Very ilmlted branching

i.088 iimhed branching

Statewide by merger

Statewide branching

11
Structure of Rural Banking

Bank Holding Company Characteristics by State

Multibank holding companies (MBHC's) are more active In States that severely limit the

ability of banks to expand their branching networks.

The MBHC format has been used as a substitute for

branches in States that restrict branching. Some

States eliminated this option by outlawing MBHC's.

Only Mississippi continues to outlaw MBHC's, but

other States still limit the number of affiliates or the

proportion of State deposits that can be controlled

by a single holding company. MBHC's controlled

about 29 percent of the Nation's banks in mid-1986,

but this proportion understates their importance

within the banking system. In 1986, MBHC's

controlled 51 percent of the commercial bank offices

operating in this country and 51 percent of the

banking system's total assets. Table 2 summarizes

bank holding company data by type of State

branching law.

MBHC affiliates generally make up a higher

proportion of banks in States with tight branching

restrictions than they do in States with very liberal

branching laws. Texas alone had 828 MBHC

affiliates, and other States that restrict branching (or

did until recently) also had above average

proportions of their banks owned by MBHC's

(Colorado, Michigan, Missouri, Montana, New

Hampshire, New Mexico, Wisconsin, and Wyoming).

The two groups of States allowing statewide

branching had the lowest average percentages of

MBHC-affiliated banks, but several exceptions to this

overall trend are apparent. Almost two-thirds of

Delaware's banks were part of MBHC's, because of

special-purpose credit card banks organized by

large non-Delaware banks. Florida, Maine,

Massachusetts, and New Jersey are all branching

States with a relatively high proportion of MBHC

affiliates. Florida and Massachusetts only recently

permitted statewide branching, and the process of

reorganizing MBHC's as branch banks may not be

complete. In Maine and New Jersey, interstate

mergers of holding companies or remaining

restrictions against branching in towns with fewer

than 10,000 residents may account for the MBHC

concentrations. Illinois, nearly a unit-banking State,

was only slightly above average because MBHC

activity was liberalized only in the last few years.

12
State Regulations

• Limit HC size

• Prohibit new affiliates and acquisitions of banks under 5 years old

• Geographically restrict HC operations

• Prohibit IVIBHC's

Table 2—Bank hofding company affiliation by type of State branching law,

June 30, 1986

Banks affiliated wlth"

State branching law No holding

company

One-bank holding

company

Multibank holding

company

Percent

Unit banking 30 33 37

Very limited branching 33 37 30

Less limited branching 37 39 25

Statewide (by merger) 37 40 23

Statewide (unlimited) 49 31 19

Note: Includes District of Columbia. Appendix table 1 presents State-level data. Total

percentages may not sum to 100 due to rounding.

Source: (70).

13
Structure of Rural Banking

Joint Role of State and Federal Regulations

Recent Federal and State laws have reduced the restrictions on commerclai banks and

encouraged changes in branching patterns and product lines.

Changes in Federal and State bank regulations have

directly or indirectly affected the geographic scope

of bank operations. Federal legislation generally

defers to State banking restrictions. The MbFadden

Act of 1927 and the Banking Act of 1933 allowed

nationally chartered banks in each State to operate

under the same branching restrictions as those of

State chartered banks in that State. Thus,

geographic deregulation has proceeded primarily at

the State level, with Federal legislation having an

indirect role.

Banking organizations can often geographically

expand through the acquisition of additional MBHC

affiliates, either by mergers or by opening new

banks. In unit-banking States^ IVIBHC's are made up

of a number of single-office banks. In limited

branching States. MBHC affiliates are often

branching banks, with offices located throughout a

county. After tightening restrictions during the

1950's and 1960's, many States eased restrictions

on MBHC activities during the 1970's and 1980's,

often in conjunction with changes in branching

restrictions. But Missouri, Tennessee, and Texas

tightened MBHC restrictions over the last two

decades.

Texas legislation passed in 1987, however,

introduced limited branching and allowed

consolidation of holding companies to one affHîate

per county. Thus, some MBHC's are converting

their affiliates to branches of county-consolidated

banks, but MBHC's will remain important for Texas

bank organizations that wish to serve more than one

county.

By 1986, only 18 States continued to restrict MBHC

activity, either through geographic restrictions or

restrictions on the permissible size of HC assets (or

deposits) compared with the assets of all banks in

the State.

Changes in State regulations were needed to

increase the permissible geographic expansion of

bank organizations, but Fédérai oversight of the

banking industry may have encouraged some of

these State moves. A fear of concentrated

economic power was at the heart of many State

laws that fostered decentralized banking systems

comprised of many small banks. However, through

a series of legislative actions and court decisions at

the Fédérai level, culminating in the Change in Bank

Control Act of 1978, changes in the ownership of

banks, even State-chartered banks, come under the

scrutiny of the Federal Reserve Board. Since

market concentration became a determinant of

whether sales and mergers were approved^r not.

State legisl^ors may have worried less about the

consequences of geographic deregulation, knowing

that competition would be maintained within local

markets through the federal Reserve Board's

oversight.

The 1978 Act also had a slight direct effect X)n

banking structure by spurring some chain banks to

reorganize as MBHC's. Bank owners can devetop

chains of banks without setting up a holding

company as an outer shell. These chain bank

organizations (coniprised of two or more banks

controlled by the same investors) can serve multiple

markets without coming under Federal oversight, as

HCs must. However, the 1978 Act meant that chain

banking organizations came under Federal scrutiny

whenever ownership of one of the chain's banks

changed hands. Because chain banks that wished

to expand needed federal approval anyw^, and

because HC's have other advantages over a cliain

bank structure, some chain bank organizations have

formed MBHC's in recent years.

Little evidence on chain banks exists, but Luckett

believes that most involve two or three banks (16).

He also Suspects that chains^ have expanded in

Stateis such as Oklahoma where people expected

MBHC's to be legalized soon. Banking executives in

those States wanted to be ready to take quick

advantage by converting ctiains to MBHC's.

Other federal legisiatidn has unexpectedly changed

the incentives and options facing bank managers,

federal legislation in the early 1980's, phasing out

restrictions on the interest rates banks could pay on

deposits, reduced^he incentive for maintaining large

branching networks as the primary engine for

growth. Banks formerly competed on the basis of

service, such as a branch on every corner, and

acquired loanable funds primarily through retail

savings and demand tieposits. Interest rate

deregulation allowed banks to compete for deposits

with other investment outlets, but it also raised the

cost of attracting retail deposits. Faced with these

higher retail costs, banks began making more use of

large certificates of deposit (CD's), often purchased

through brokers. The interest rates on CD's are

higher than those paid on regular deposits, but

transaction costs for handling them are often lower

14
than for more traditional checking and savings

accounts. Thus, even when banks receive

permission to expand their branching operations,

many choose to grow without taking on the expense

of building new offices and training managers to run

them. And some banks In statewide branching

States have reduced the size and geographic

coverage of their branching networks, relying instead

on automated teller machines (ATM's) to serve their

retail customers.

State and Federal Regulations Jointly Control

Geographic Expansion

• State regulations govern intrastate banking

Have been the main source of relaxed geographic restrictions.

• Federal regulations defer to State restrictions on bank structure

Have had an indirect role by changing incentives. For

instance,

— Change In Bank Control Act of 1978 brought ownership

changes under control of the Federal Reserve Board, which

spurred formation of MBHC's by chain banks.

— Interest rate deregulation slowed branching by emphasizing

multiple products and large CD's.

15
Structure of Rural Banking

Interstate Banking Is Expanding

Only five States totally prohibit interstate banking by holding companies. But the

national ban on Interstate branching remains In effect.

Interstate banking was rare until recently because

Federal legislation prevents commercial banks from

operating full service bank branches in other States,

and the Bank Holding Company Act of 1956 banned

acquisitions of banks outside an MBHC's home

State. However, the 1956 Act included a huge

loophole: an individual State could give MBHC's

from other States permission to acquire banks within

its borders. Thus, States began in 1978 to aHow

interstate banking, and the trend has spread rapidly

during the 1980's.

Though details vary substantially, five States, at

most, have failed to pass legislation authorizing

some form of interstate banking (table 3 and app.

table 2). Reciprocity is often required, at least in the

initial years. Regional compacts, in whfeh only

banks from a specified list of States are eligible,

were quite popular in the early stages of the

interstate banking movement. Such compacts allow

local banks time to merge and become large

enough to remain independent before having to

compete with large money center banking

organizations. But, such protection is usually limited

in time, after which the State's banking market is

opened to all comers. If the process continues,

Federal action in this arena will soon become

irrelevant. By 1992, 29 States are scheduled to

permit nationwide banking.

State legislation is also differentiated by whether or

not new (de novo) banks are an option in addition

to purchasing existing banks. Preventing de novo

entry may seem to contradict prevailing competitive

tendencies in the economy, but the stock price of a

bank that is a potential candidate for acquisition

may rise significantly if a merger is the only way

other banks can enter the market. Entry by merger

is equally attractive for the outside bank, since that

can eliminate years of work required to build a

strong local franchise. Banks with a strong desire

to remain independent also fight for barriers to slow

the entry of competitors into their markets.

A grandfather clause in the 1956 Act allowed

existing interstate MBHC's to keep their affiliates.

Thus, several early interstate MBHC's may appear

inconsistent with current State laws. Other, more

recent inconsistencies resulted from special

provisions in Federal and State legislation to deal

with failing banks. Opening up the bidding process

to out-of-State banks increases the likelihood that

the FDIC can find a buyer for an insolvent bank,

rather than liquidate it.

Some States passed legislation to permit continued

expansion by grandfathered interstate MBHQ's. First

Interstate, created by the forced divestiture of

Transamerica Corporation into Bank of America and

First Interstate, is based in California and has

affiliates in many Western States. Several large

MBHC's based in Minnesota have banks in

neighboring States. Boatmens has its lead bank in

Missouri^ with affiliates in Illinois and Tennessee, and

merged recently with a larger MBHC (Guardian) that

served only Missouri. To avoid losing the

grandfather exemption, the parties agreed to

structure the deal on paper as if Boatmens

purchased Guardian. The First American Bank

system serves the District of Columbia, Virginia,

Maryland, New York, and Tennessee.

Special-purpose banks, typically the "credit card

bank," are permitted by legislation in several States.

Some banks market credit cards nationwide through

the mail. By issuing cards from a bank affiliate in a

State with less restrictive regulations governing

annual fees, interest rate ceilings, and other terms,

the holding company can bypass restrictions on

these terms in its home State. Delaware has been

especially successful at attracting these affiliates, but

Maryland, Nebraska, Nevada, South Dakota, and

Virginia have similar legislation. The idea is to

attract jobs for State residents, while placing

restrictions on the permissible activities of the credit

card bank to prevent it from competing with local

banks in local markets.

A second loophole in Federal banking legislation led

to the invention of the "nonbank bank." Before

1987, legislation prohibiting interstate banking

described banks as entities that provide both

transaction accounts (checking accounts) and

commercial loans. Hence, a firm that looked very

much like a bank (had a bank charter and received

Federal deposit insurance) could operate offices in

more than one State, provided that it withheld

offering either checking accounts or commercial

loans. Some operations got started, usually as

consumer banks that made no commerciaí loans,

but despite much publicity, they had little effect on

the financial industry. A clause in the Competitive

Equality Banking Act of 1987 removed the loophole.

16
About 160 grandfathered nonbank banks were

allowed to continue operating, but the legislation

restricted their asset growth.

In 1986, we also found three exceptions in which

banks operated modest interstate branching

networks. The Bank of California had one office in

Oregon and three in Washington, California First

Bank had one Oregon branch, and the Midlantic

National Bank (South) of New Jersey owned a

Philadelphia branch. Some cases of foreign banks

with offices in more than one State (under the

International Banking Act) were excluded from our

tables. The 1989 thrift bailout legislation may lead

to more such exceptions, but branching is not a

realistic approach for interstate expansion. However,

because interstate MBHC affiliates can operate

branches ais permitted by those States, in many

cases these restrictions are not critical.

Table 3—Interstate banking legislation

Interstate banking

not permitted

Recíprocaí regional

interstate banking

Reciprocai national

interstate banking

Unrestricted national

interstate banking

Hawaii, Iowa, Kansas, Montana, North Dakota

Alabama, Arkansas, Connecticut, District of Columbia, Florida, Georgia,

Maryland, Massachusetts, Minnesota, Mississippi, Missouri, New Hampshire, North

Carolina, South Carolina, Tennessee, Virginia, Wisconsin

California, Delaware, Illinois, Indiana, Kentucky, Louisiana, Michigan,

Nebraska, New Jersey, New York, Ohio, Pennsylvania, South Dakota, Vermont,

Washington, West Virginia

Alaska, Arizona, Colorado, Idaho, Maine, Nevada, New Mexico,

Oklahoma, Oregon, Texas, Utah, Wyoming

Note: Appendix table 2 provides additional detail on specific State laws.

Source: (1,3).

17
Trends in Bank Structure

Recent Trends Suggest Future Possibilities

Federal and State laws, economic eventSi and technology have dramatically changed

commercial banking In the last 25 years.

Banks expanded their geographic coverage through

networks of branches as States iiberalized their

branching restrictions. But much of this expansion

was simply converting multibank holding company

affiliates to branches. In States with long branching

traditions, at least some large banks have actually

reduced their branch networks by eliminating

unprofitable branches in the wake of interest rate

deregulation and the introduction of ATM's.

Economic developments and more permissive laws

have led to a growing number of bank mergers.

Economic developments have also led to record

numbers of bank failures during the 1980's.

Looking at bank structure over time and

emphasizing those States with extreme or new

regulations governing bank branching and holding

companies should suggest possible scenarios for

the future evolution of bank markets. In this section,

we examine several aspects of bank structure for

individual States across time, looking at fluctuations

in the numbers of banks, new banks, bank failures,

banks absorbed as branches of other banks, and

holding company activity.

Because deregulation has proceeded primarily at the

State level, affecting all of the State's banks, our

analysis looks at State aggregates, with only

occasional reference to trends in rural areas. We

can point out some differences and trends that

highlight the effects of prior laws or fluctuations that

follow close on the heels of new State banking

legislation. Even if few surprises show up in these

data, identifying past responses by the banking

industry provides context for speculating about what

will happen because of recent and anticipated

deregulation due to action by Congress or the

various State legislatures.

When contemplating the possible implications of this

State analysis on rural communities, it is Important

to keep two things in mind. First, past trends

cannot be extrapolated to predict the future without

giving thought to changes in the financial

environment. As an important example, banks in

States that have just opened themselves to

widespread branching may not look as favorably

upon branching as an expansion technique as did

banks in other States 10 or 20 years ago. Rather,

merger is more popular these days.

Second, while rural areas are becoming more

integrated with the national economy, remaining

differences will probably cause the evolution of rural

financial markets to diverge from the path taken by

large urban markets, Rural communities have fewer

and usually smaller businesses. If large banks

prefer to deal with large customers, we should not

expect to observe the same mix of banks serving

urban and rural markets.

18
Trends in Bank Structure

Changes in the Number of Banks

Mergers, holding company reorganizations, and failures In the late 1980's have reversed

a 20-year upward trend In the number of banks. Still, four States' rapid economic and

population growth led the Nation In the number of new banks during 1960-86.

The numbers of insured commercial banks grew by

965 during 1960-86, but the number of rural banks

declined by 1,458 in that same period (table 4, app.

table 3. and fig. 3).^ Total banks grew in the 1960's

and 1970's, peaked at around 14,500 in 1984, and

dropped below 13,000 by the end of 1969, the

lowest since 1960 at least (fig. 4). The number

grows when new banks are chartered by State or

Federal regulators, and declines as banks are

converted to branches or closed following mergers,

MBHC reorganizations, and failure. State banking

laws, local economic and demographic conditions,

and the initial banking structure are important in

understanding the substantial variations across

States shown in appendix table 4.

Growth in unit-banking States such as Colorado and

Texas is easy to accept, as are declining bank

^ The rural/urban division of counties varies over time as new

metropolitan statistical areas (MSA's) are designated. Rural or

urban iocatîon is determined by whether the bank's headquarters

is in a Metropolitan Statistical Area (MSA). The table applies

definitions in effect in 1960 and 1986, respectively.

counts in older industrialized States with at least

limited bank branching powers (much of New

England, New Jersey, New York, Ohio, and

Pennsylvania). Some of these States liberalized

branching during this period. Statewide branching

has long been established in California, but total

banks still grew from 110 to 471.

Florida falls somewhere in between. The growth in

banks (from 288 to 397) did not match the explosive

growth of the economy and population. However,

Florida went from unit to statewide branching during

this period. Thus, many banks became branches of

other banks through new mergers or MBHC

consolidations.

What were the dynamics of 1960-86 changes in

bank structure? New banks were formed, while

others disappeared as independent entities through

mergers and failures. Other banks remained

nominally independent but became affiliates of

multibank holding companies.

Table 4—Bank location, selected States

State Rural

Januarv 1. 1960

Urban

December 31. 1986

Total Rural Urban Total

Number

Arizona 3 5 8 8 45 53

California 21 89 110 32 439 471

Colorado 109 52 161 157 313 470

Illinois 530 419 949 540 677 1,217

IVIaine 39 9 48 14 8 22

Montana 103 12 115 146 23 169

New Yorl< 197 204 401 54 142 196

Oklahoma 298 83 381 312 207 519

Pennsylvania 317 394 711 107 195 302

Virginia 238 71 309 97 73 170

U.S. total 9,017 4,090 13,107 7,559 6,513 14,072

Note: Appendix table 3 provides State-level data.

Source: Compiled from (13).

19
Four States Led Nation in New Banks, 1960-86

Texas, Florida, California, and Colorado accounted

for 45 percent of the new banks that opened during

1960-86 (table 5 and app. table 5). Those States

have consistently led the way for two decades.

Florida has done very well the past few years even

though it now permits statewide branching, and

California has had more than 10 new banks every

year since at least 1973 in spite of extensive

branching by its leading banks. Whether this

growth is t>ecause investors have identified market

niches in growing economies or have sought quick

returns by selling out in a few years we are not

sure. The latter possibility is more likely in Florida

because branching outside a bank's home county

can only proceed by merger (app. table 4).

The creation of new banks is closely associated with

rapidly expanding economies; Texas and Florida

have led the country in the number of new banks

formed since 1960. But branching restrictions

certainly play a role. If existing banks cannot open

new branches, Investors and multibank holding

companies are more likely to charter new banks.

Some new banks follow the closure of other banks

by failure or merger. Of the 203 failures in 1987, 17

cases were resolved by chartering new replacement

banks (9). California had the third highest number

of new bank formations over this period, but one

would have expected it to be first based on total

economic growth. However, active statewide

branching firms entered or expanded in growing

markets through branches rather than new banks.

Nonetheless, the California experience suggests that

small banks can successfully find market niches

among the industry behemoths.

Fewer than a fourth (1.520 of 6,306) of the 1960-86

new banks were headquartered in rural counties.

Rural banks remain a majority, but the gap has

narrowed quite a bit (table 4). Comparing bank

office numbers would paint a drastically different

picture, as total urban bank offices far exceed rural

offices. Rural bank markets have apparently tended

to be more stable; fewer new banks have been

established, but also fewer have been involved in

mergers.

Table 5—New banic formations in selected States

state 1960-72 1973-76 1977-80 1981-83 1984-86 Total

Number

California 165 82 104 171 83 605

Colorado 123 68 82 118 55 446

Florida 291 178 30 73 109 681

Texas 287 139 113 280 313 1,132

U.S. total 2,352 1,155 811 972 1,016 6,306

Note: Appendix table 5 provides data for all 50 States and District of Columbia.

Source: {13).

20
Figure 3

Trend in numbers of rural/urban banks

Number

16.000

14.000 13,107

12.000

10.000

8,000

6,000 -

4.000

2,000

January 1,1960 December 31,1986

^ Rural 0 Urban

Note: Insured commercial banks in DC and the 50 States.

Source: (13).

14,072

..."•*p^B1

" ••..,p^^^>^^>^^^^1

Figure 4

Number of banks, year end 1960-89

Number

15.000

14,000

13,000

12.000 -

11.000

10,000

1960 1970 1980

Note: FDIC insured commeroial banks In DC and the 50 States.

Source: (13).

21
Trends in Bank Structure

Bank Failures

Many of the 484 commercial banks that failed between January 1983 and July 1987

were headquartered In rural counties and had above-average ratios of farm loans to all

loans.

The FDIC handles the disposition of insured

commercial banks after they are closed by the

appropriate State or Federal chartering authority and

keeps official statistics on failures. The FDIC uses

the least costly of several available methods to

resolve failures, depending in part on the condition

of the bank and its market and the State's

branching laws. As a last resort, the bank Is simply

liquidated, with insured depositors paid off, bank

offices shut down, and loan accounts taken over by

the FDIC. More often, service is maintained to the

bank's customers. Deposit accounts may be

transferred to a neighboring bank. If State law

permits branching, the bank may become a branch

of some other bank. Often a new bank opens on

the same premises, in many cases on the next

business day following closure if the FDIC finds

willing investors or bank holding companies (where

legal) with the necessary experience and capital.

The FDIC has recently experimented with open bank

assistance-the bank is never formally closed, but

the FDIC provides financial assistance sufficient to

place the bank back on a solid footing.

Open bank assistance was used for 21 of 221

failures in 1988. The number almost expanded

significantly in 1988 as the FDIC considered

assistance packages for two large Texas multibank

holding companies, each with dozens of bank

affiliates {15), But, one deal was structured to count

only the lead bank as an open bank assistance

case, and the other case was resolved by closing all

bank affiliates and immediately reopening them

under management of a North Carolina MBHC.

More than half of the insured commercial banks that

failed during 1983 through the first half of 1987 did

so in 1986 and 1987 (table 6). Most of those 484

failures were headquartered in rural counties, and

many were agricultural banks (those with an aboveaverage ratio of farm loans to total loans). With a

couple of exceptions, State data suggest that

failures occur primarily where restrictive branching

meets severe economic problems. Most failures

were relatively small banks in States that prohibited

or limited bank branching. Depressed conditions in

the agricultural and energy sectors magnified

problems caused by lack of diversification, volatile

interest rates, and bad or fraudulent bank

management. Thus, bank failures surged during the

1980's. Colorado, Iowa, Kansas, Minnesota,

Missouri, Nebraska, Oklahoma, and Texas are

among the leading examples of this process.

Tennessee also had many failures, but most were

banks controlled by a single family. We are not

sure how to explain the 29 California failures, though

one possibility is that failures are related to the

greater latitude of California's state-chartered banks

in areas such as real estate development and equity

participation. Statewide brancfiing is quite extensive

in California, but the largest banks did not fail.

Because California also typically has many hew

banks, perhaps it provides a glimpse of what the

future U.S. banking structure might look like. At the

very least, that 11 of these banks were less than 5

years old suggests that banking is no longer a sure

investment. A high failure rate for new firms is

normal for most businesses, but no more than 20

insured banks failed in the whole country in any

single year between 1940 and 1980.

Past or present problems of several large bank

organizations (achieved with or without the benefits

of branching and including some large Texas

MBHC's) amply demonstrate that large size does not

protect a banking firm from poor management. But,

many State legislatures have bought the argument

that wider branching, interstate banking, or both,

can provide better, maybe safer financial services to

business and consumers. The long trend away

from restrictions on intrastate branching and holding

company activity has accelerated as a response to

bank failures, interest rate deregulation, and

technological change.

Bank failure is probably the most dramatic form of

structural change. Because outright liquidations are

rare, however, arguments over whether public policy

should do more to prevent failure apply equally well

to issues such as nnerger and interstate banking

policies. The loss of a competitor and the absence,

in some cases, of local decisionmaking on ioan

applications are tradeoffs against possible gains

such as a wider variety of services and bigger loan

limits.

22
Table 6-Failed banks in selected States, by type, location, and year of failure

State

Tvpe^ Location JanuaryAgri- Nonagri- Rural Urban 1983 1984 1985 1986 July Total

cultural cultural 1987

California

Colorado

Illinois

Iowa

Kansas

Louisiana

Minnesota

Missouri

Nebraska

Oklahoma

Oregon

Tennessee

Texas

Wyoming

U,S. total

1

6

8

26

32

3

18

21

25

23

3

3

19

2

214

28

17

9

2

8

14

4

6

0

28

10

28

59

13

270

1

10

8

26

32

8

19

22

24

27

5

17

29

10

274

28

13

9

2

8

9

3

5

1

24

8

14

49

5

210

5

1

6

0

1

0

1

1

1

1

4

12

3

1

44

Number

6

2

6

3

7

1

4

2

5

5

5

11

6

2

78

7

6

2

11

13

0

6

9

13

13

3

5

12

5

118

8

7

1

10

16

9

5

10

6

17

1

3

26

7

144

3

7

2

4

3

7

6

5

0

15

0

0

31

0

100

29

23

17

28

40

17

22

27

25

51

13

31

78

15

484

Note: Appendix table 6 provides State-level data for 50 States and the District of Columbia.

A bank is agricultural If its ratio of farm loans (production loans plus real estate loans secured by farmland) to total loans

exceeds the average for all insured U.S. commercial banks. The reverse is true for nonagricultural banks

Source: (9, 14).

23
Trends in Bank Structure

Bank Mergers and Acquisitions

Banks merge or one bank acquires all or part of another firm most often In States that

allow branching operations.

Bank mergers can take at least two forms. One

bank may purchase a second bank and convert it to

a branch; In other acquisitions, the lead bank takes

over the deposit and loan accounts of the

purchased bank, but then doses it rather than

operating it as a branch if the purchased bank is

near an existing office or if State law would not

allow a branch (at least at that location). Table 7

addresses the former case, showing the nine States

with at least TOO absorptions between 1972 and

1986.

Another merger method is for a bank holding

company to acquire a bank and, either by choice or

out of legal necessity, run it as an aff[Hated bank

with its own bank charter, officers, and board of

directors/Whether or not the organizational form

(branch or affiliate) makes a difference with respect

to local decisíonmaking on loan applications is one

of the key issues faced by States considering

relaxed branching restrictions.

During 1972-86. almost 3,00a banks were absorbed

as branches of other banks (table 7 and app. table

7). State banking legislation is critical to placing

these data in context. Florida had no absorptions

when only unit banking was allowed but had 78 in

1977 when limited branching began. Although the

annual number was never again thatlarge,

absorptions have continued as MBHC's and perhaps

chain tonks reorganized their affiliates as branches.

Some Florida absorptions were new purchases by

independent banks or holding eompanres. Available

data do not permit us to estimate the relative shares

of absorptions associated with M BHC

reorganizations and acquisitions.

Observing absorptions is not surprising in any State

that permits branching, because obtaining an

existing firm gives a bank a running start in entering

a new market or increasing its share of a market

that it already serves. Sudden jumps in the rate at

which banks become branches of other banks can

often be explained by new branching legislation.

Absorptions are particularly likely in States that

permit statewide branching only by merger

(Alabama, Florida, South Dakota, and Virginia).

Colorado, Illinois, and Texas have absorptions that

need explaining because they appear inconsistent

with branching restrictions in effect at that time.

Some of the recent absorptions may be due to

special provisions covering failed banks, while earlier

cases may have been permitted by grandfather

clauses or specific legislative acts.

Some bank transactions increase the number of

separate banking organizations or change the

distribution of offices owned by existing firms. A

banking firm may divest some of its banking

affiliates or branch offices to concentrate managerial

resources in fewer geographic or product markets.

For example, at least one multibank holding

company sold its rural, agricultural-oriented affiliates.

Other banks involved in mergers have divested

offices to meet antitrust objections from the Federal

Reserve. Merger applications are rarely rejected,

but the Federal Reserve must examine potential

effects on competition in each local market served

by any of the merger partners. If both firms have

large market shares in a particular market, the

resulting firm may have to sell some of those offices.

Table 7—Banks absorbed as branches of other banks, selected States

State 1972-76^ 1977-80 1981-83 1984-86 Total

Alabama

Florida

Georgia

Missouri

New Jersey

New York

Ohio

Pennsylvania

Virginia

U.S. total 462 637

Number

4 0 51 55 110

0 201 149 139 489

16 9 44 53 122

1 2 10 130 143

48 28 32 20 128

69 24 16 19 128

29 105 43 46 223

58 30 22 39 149

26 70 48 36 180

759 1,098 2,956

Note: Appendix table 7 provides data for 50 States and District of Golumbia.

^ Beginning June 30, 1972.

Source: (13).

24
Trends in Bank Structure

The Growth of Holding Companies

Bank holding company activity has accelerated in recent years, as banks positioned

themselves to provide services through nonbank affluâtes of the holding company or to

get around State branching restrictions.

Between 1960 and 1986, there were 12,870 cases in

which insured commercial banks either received new

holding company numbers or became bank affiliates

of holding companies after previous lives as

independent banks (app. table 8). Every bank

holding company is assigned a unique holding

company number by the Federal Reserve Board,

one that is shared by each of its bank affiliates.

Appendix table 8 probably overstates hokJing

company activity because corporate reorganizations

and mergers of holding companies sometimes result

in the issuance of an entirely new HC number,

rather than using one of the old numbers. But State

variations should still reflect different economic and

legislative environments across States. Fewer than

12,870 different banks obtained new HC numbers,

because over the 27-year period some banks

appeared on the list more than once. Also, the

table does not include an additional 867 cases in

which HC affiliates returned to independent status

(indicated by a 0 value for the HC number). The

latter may reflect divestitures in which MBHC*s spun

off affiliates to new investors as independent banks

or because regulators required the sale of some

bank affiliates as a condition for approving mergers.

Over 80 percent of the cases covered by the table

came about because an existing bank took on the

holding company format for the first time. This

action incorporates several situations, such as a

chain banking organization that is reorganizing as

an MBHC, a mature bank converting to a one43ank

holding company (OBHC), or a mature bank that is

purchased by an existing or newly established

MBHC. New banks forming an OBHC at the time of

establishment and new banks started by established

MBHC's are generally not part of appendix table 8.

As new banks, they lack old values of the holding

company number.

The 2,360 records that correspond to changed

holding company numbers for banks that were

already HC affiliates are presumably typically due to

bank mergers and acquisitions, as is some portion

of those banks going from independent to holding

company status. Though both types of holding

company change are at least in part caused by

mergers, not all mergers affect this table. Whether

the acquiring bank is independent or a holding

company affiliate, mergers where one bank acquires

a second bank as a branch do not produce records

in appendix table 8. These are the absorptions of

appendix table 7.

Past, present, and future State branching laws (app.

table 4) should be kept in mind when examining

appendix table 8. AU States show activity by

independent banks becoming HC affiliates. We do

not yet have the data in a form to separate out

OBHC cases from affiliation with MBHC's. But by

1986, over 5,000 banks had organized themselves

as one-bank holding companies, thereby expanding

their permissible range of activities through the use

of nonbank HC subsidiaries. Or they may have

been attracted by more flexible financing

arrangements available to holding companies, but

not directly to banks themselves.

In most States, totals from appendix table 8 give

values close to totaf banks (app. table 3). This

situation is coincidental; only about two-thirds of all

banks are holding company affiliates, and the table

includes banks that no longer exist. But it does

help to identify States where holding company

activity differed substantially from the norm. For

California, the current number of banks far exceeds

the count of those that changed holding company

number; appendix table 1 makes this clearer by

showing that independent banks are the majority.

Perhaps many California banks have found the

range of activities pennitted by State regulatory

officials superior to those available for HC affiliates.

Also, statewide branching eliminated MBHC

expansion as a cause of holding company activity.

Florida is at the other extreme, with HC changes

exceeding twice the number of banks now found in

the State. Because Florida formerly restricted

branching, many Florida banks were acquired by

MBHC's. More recently, several large Florida

MBHC's were involved in interstate mergers that

resulted in new holding company numbers for the

affiliated banks. Meanwhile, since Florida liberalized

its branching regulations in 1977 to permit statewide

branching by merger, many affiliates were absorbed

as branches, thus reducing the current count of

banks in Florida.

25
Trends in Bank Structure

Interstate Banking Aetivitjes

Some banks become "Interstate" by acquiring a banic firm in anotlier State, while some

merely establish a "special purpose" banic that only offers iimtted services, such as

credit cards.

Owning local full-service banks is not the only way

to do business in other States. Money center banks

have loan production offices in major cities across

the country, and their holding companies provide

other financial services through subsidiaries in fietds

such as mortgage banking and consumer finance.

Banks market credit cards through the mail, and

some try to extend this approach to deposit

accounts. Yet, many banks evidently feel that only

full-service banks can accomplish their goals for

growth and geographic diversification. We use the

term "interstate banking" to mean providing a wide

range of banking services across State Jiries.

At the end of 1986, 1,231 commercial banks were

affiliated with MBHCs that controlled bank affiliates

in two or more States (the "unadjusted" portion of

app. table ^. Of these, 320 banks were

headquartered in rural counties. Bank branching

networks are also important because purchasing

one bank with an extensive statewide branching

system can provide access to more of a State's

markets than buying a dozen unit banks. Of the

17,593 branches associated with interstate banking

organizations, 982 belonged to rural banks.

However, these data do not accurately depict the

importance of interstate banking through 1986 in

terms of how many banks and communities were

significantly affected.

All bank affiliates of holding companies operating in

different States are included in appendix table 9. In

some cases where interstate MBHC's had upwards

of 70 affiliated banks, closer inspection showed that

only one affiliate was in a different State. The

exception turned out to be a credit card bank or

other special purpose bank in Delaware or one of

the other States that permit such entities; Because

credit card banks are typically prevented by law

from competing with local banks in local markets,

this form of interstate banking does little to affect the

array of financial services available to rural or urban

residents, and deleting such banks from our count

of interstate banks probably makes sense. In less

extreme cases, say if a large Ohio orgahization

acquires a small Indiana bank, the Ohio bank offices

and their customers will probably not notice any

change in service availability or price.

Branch counts in the table are derived from banklevel data and, therefore, do not necessarily imply

rural or urban branch locations. That is, where

permitted by State law, urban banks may have some

rural branches and njral banks may have soma

urban branches. But in appendix table 9, branch

data are grouped by headquarter location. The

accuracy of these counts improves in States^ that

limit branching to the home county.

"Grandfathered interstate MBHC's" ^re organizations

whose continuing operations were made possible by

clauses in subsequent Federal legislation meant to

curb the^ormation of additional interstate bank

holding companies, That legislation was ultirnately

unsajccessfuL We also found a few ca^

interstate branching in which a bank somehow

managed to have a branch in a different Stata^^

included the grandfathered interstate MBHC's in

appendix table 9. But, we included interstate

braaiching banks only if thr bank also belonged to

an interstate MBHC.

Table 8 merely begins the process of coping with

the above difficulties in selected States. We

recompLrted interstate bank and branch counts after

ignoring credit card banks and other special

puîpose banks that seemed not to serve local

residerits and businesses or to do so in a ve^

limited fashk>n. Most of the decline in total

interstate banks is due to organizations that had no

out-of-StateWfiliates other than these special banks;

hence, airiheir affiliates were dropped. Interstate

counts were reduced to 716 banks (264 rural) with

14,014 branches <838 belonging to rural affiliates).

Counting banks involved in interstate banking is a

very fluid situation, especially in T©<as, which boasts

severaf large MBHC systems because of its large

size and uni^banking tradition. We removed^^^^^^^

Texas interstate affiliates from adjusted counts of

interstate MBHC's because their out-o^state

operations were limited to special purpose banks.

But, if we recreate the table with more recent data,

many reappear because they ran into problems and

were purchased by large MBHC's from California,

New York, North Carolina, and Ohio or were sold to

new investors with FDIC assistance. Culture clashes

ms^ lead to real changes in banking services for the

affected "föxas communities, but the "foreign" banks

face competitive pressures from remaining Texas

banks that may serve to minimize change.

Other mergers of iarge regional banks that brougttt

together banks with hundreds of branches in their

26
respective States may hardly be noticed by branch

customers. People in small communities were

already served by bank branches or affiliates subject

to directives from lead banks in large cities. The

regional giants involved in these mergers have

flourished in recent years by sewing firms and

consumers in their own backyards. Thus, we do not

anticipate any détérioration in rural financial services.

When full nationwide banking takes effect and they

must compete directly with money center banks, it is

possible that several regionals will forget their roots.

But events that occurrerl during the 1980*s should

provide sufficient incentive for them to continue to

do what they do best.

Table 8—Interstate multibank holding Gompanies, selected States, December 31, 1986

Banks Branches Assets

State Rural Urban Total Rural Urban Total Rural Urban Total

Mi'f/i'nn Wnl/ar»

Galifornia 0

Florida 8

Georgia 8

Massachusetts 3

Minnesota 55

8

34

18

14

47

8

42

26

17

102

0

21

32

14

40

2,304

834

518

423

78

2,304

855

550

437

118

0

865

1,041

409

3v558

172,573

33,275

27,418

46,955

31,326

172,573

34,139

28,458

47,365

34,884

New York 2

North Carolina 2

Ohio 17

Pennisylvania 1

Virginia 11

25

4

32

3

20

27

6

49

4

31

74

212

65

39

55

2,426

787

985

251

1,041

2,500

999

1,050

290

1,096

1,504

3,398

2,230

857

1,207

557,314

41,160

39.496

30,442

35,907

558,818

44,558

41,726

31,300

37.114

U.S. total 264 452 716 838 13,176 14,014 26,638 1,198,227 1,224,865

Note: Includes only multibank holding companies operating fuil-servioe banks in two or more States. All offices are

assumed to be in the same type of location (rural or urban); thus, these counts are not aceurate. Asset data are shown under

the type of location for the company's headquarters. Appendix table 9 provides State-level data for 50 States and District of

Columbia.

Source: (74).

27
Rural Banks and Bank Markets During the 1980's

Current Structure of Banlcrng in Rural America

The 8,040 commercial banks serving rurai America provide a wide range of services to

their marlcets. Rural banks that are part of urban-based organizations draw on the

strengths of their headquarters in extending certain services.

Bank-level data have long been used to describe

the operations of banks headquartered in rural

areas. But, banks often provide services to clients

located beyond the boundaries of the county in

which they are headquartered, either through a

multicounty branching organization, through

correspondent banking relationships (often with

other affiliates of an MBHC), through ATM's, or

through the mail. Thus, bank-level data provide a

distorted view of the structure and performance of

banks serving rural communities.

Most banks headquartered in rural counties were

small, '¡ndependenf one-office banks, and over half

had above-average concentrations of farm loans

within their loan portfolios at the end of 1986 (table

9). These data support the commonly held

perception that rural communities are generally

served by small, agriculturally oriented banks. This

perception is true for many rural communities,

particularly those in the Midwest, but a different

picture evolves when multicounty branching and

multibank holding company affiliations are taken into

account. Available branch-level data give a better,

although far from complete, picture of the structure

of rural banking systems.

On June 30, 1986, 7,663 FDIG-insured commercial

banks were headquartered in nonmetro areas.

(Metro designations are based upon MSA definitions

as of 1983). However, 5,040 commercial banks had

one or more offices in rural America. That is, in

addition to banks headquartered in nonmetro

counties, 377 urban-based banks had branch offices

in one or more nonmetro counties. These urbanbased banks operated a total of 3,693 rural branch

offices, accounting for 19 percent of all regular rural

banking offices. Most of these banks were not

statewide branching organizations-over 50 percent

had branch offices in only one rural county; less

than 20 percent had branches in five or more rural

counties.

Urban-based banks with rural branches tend to be

much larger, on average, than rural-headquartered

banks (table 9). The average assets jump from $44

million for rural banks to $147 million when urbanbased banks with rural branches are considered.

The unweighted averages of loan categories within

the banks' loan portfolios change little, but the

overall ratios (combining the portfolios of all banks

in that category) shift substantially when urbanbased banks are included. For example, the

importance of agricultural loans drops precipitously

while the relative size of commercial and industrial

loans within the "rural" bank loan portfolio increases

dramatically when portfolios of urban-based banks

with rural branches are included in the calculations.

Much of the urban-based banks' activities are

carried out in urban areas, so their significance for

rural borrowers is difficult to judge from these

figures. The loan portfolios and lending expertise of

a bank's rural branches may look very different from

those of its urban branches. Nonetheless, branch

offices would probably take advantage of the

lending expertise of the entire bank to evaluate loan

applications. Thus, loan portfolio data on all rural

lenders may give a better picture of the potential

performance of the rural credit delivery system than

has been presented to date based solely on data

for rural-headquartered banks.

The presence of MBHC's is an additional

complication to consider when assessing the

structure of the rural banking system. Detailed

operating statistics are available for each MBHC

affiliate, but MBHC affiliation presumably makes a

bank behave differently than it would if it were

independent. For example, MBHC affiliates may be

able to draw upon the resources of the entire HC to

meet the credit needs of their customers. Thus,

even rural-headquartered banks may behave much

like rural branches of large banks if they are

affiliated with large MBHC's. If we consider MBHC

affiliates as "branches" of larger banking

organizations, rural America was sensed by 6,830

bank organizations in 1986-6,219 "independent"

banks and 611 MBHC's controlling 1,821 "rural" bank

firms operating 6,492 rural bank offices (34 percent

of all bank offices located in nonmetro counties).

Bank organizations serving rural communities far

exceed the average size of the individual banks

which partially make up these organizations (table

9). MBHC data aggregate information from many

rural banks into one bank organization, and MBHC's

draw in many bank affiliates that do not directly

serve rural America. Thus, loan portfolio ratios shift

in the same direction as when we included urbanbased banks with rural branches. The loan-to-asset

ratio and the relative size of commercial and

industrial loans within the loan portfolio increase

further, and remaining loan category shares decline

28
further, when MBHC's with one or more rural offices

are included in the calculations.

Appendix table 10 shows the extent to which rural

banking offices are controlled by urban-based

banking organizations (see appendix B for a

description of what constitutes an urban-based bank

organization). In those States that prohibit or

severely restrict branching, control comes primarily

through MBHC's. Conversely, in States with long

traditions of statewide branching, bank organizations

assert control over rural banking offices primarily

through branches. Furthermore, the proportions of

rural offices involved are much greater in the latter

cases. Many States fall somewhere between these

extremes, either because branching authority has

geographic limits or liberalizing legislation is too

recent to take full effect In such cases, holding

company affiliates supplement branching.

Table 9—Banks and bank organizations with rural offices by total offices/assets, loan-to-asset

ratios, and loan proportions, June 30, 1986

Bank firm characteristics

Banks headquartered in a

rural county

Banks with one or

more offices in a

rural county

Bank organizations

with one or more

rural offices'

Number

Banl<s or banking organizations

Independent banking firms

Rural bank offices

7,663

6,060

15,362

8,040

6,219

19,055

Milliorr dollars

6,830

6,219

19,055

Average amount of bank assets 44.0 147.2

Percent

281.2

Loans/assets ratio 50.0/52.4 50.0/62.4 50.0/65.8

Proportion of loan portfolio in:

Agricultural loans

Commercial and industrial loans

Residential (1-4 family) loans

Consumer loans

26.2/16.4

19.7/22.4

19.8/21.4

21.5/22.5

25.2/ 5.1

20.0/31.7

19.8/14.8

21.7/20.8

26.3/ 1.4

20.0/38.4

19.4/10.8

21.6/19.7

Note: Includes all U.S. commercial banks insured by the FDIC reporting nonzero deposits and loans and their regular

banking offices.

^ A bank organization is an independent bank firm (not an MBHO affiliate) or an MBHC.

^ The first percentage represents the unweighted average for each category. The second percentage is the overall ratio

based on the portfolios of ail rural banks combined.

Source: {10, 14).

29
Rural Banks and Bank Markets During the 1980's

The Changing Structure of Rural Banks and Bank Markets

Fewer banking firms serve rural communities now, but there are more rural bank

offices.

Legislation affecting intrastate bank branching or

MBHC activity took effect in 28 States during 1980-

86, together with much of the interstate banking

legislation passed to date (i). The banking systems

of only seven States were totally unaffected by

changes in State regulations governing bank

structure during these 7 years. Thus, developments

in the structure of rural banking since 1980 should

reflect, to some extent, geographic and deposit

deregulation. The banking industry has only begun

to adjust to recent changes in Federal and State

banking regulations, but definite trends are

beginning to emerge.

During 1980-86, the number of rural bank offices

increased by 11 percent, while the number of

banking firms operating in rural America declined

(table 10). The 1980's generally saw the rural

banking system become less geographically

specialized. The number of single-office banks ("unit

banks") dropped sharply as banks took advantage

of liberalized branching laws to broaden their

geographic markets and as MBHC's acquired

previously independent banks. At the same time,

the number of multicounty banking firms operating

in rural America increased by over 50 percent, with

most of this growth fueled by rural-based banking

firms. The number of urban-based banking firms

operating in rural America did not increase

substantially, but those accounted for much of the

growth in rural bank offices. By 1986, urban-based

banking organizations controlled 28 percent of rural

bank offices.

Based on trends during 1980-86, neither of the

extreme outcomes many feared would result from

bank deregulation seems to have developed. Large

urban-based banking firms are not driving rural

banking organizations out of business, nor are they

abandoning rural markets. Through mergers or

new-office branching, urban-based banking firms

have substantially increased their presence in rural

America. But rural-based banking firms have also

shown the ability to adapt to changingmarket and

regulatory environments.

The effects of interstate banking compacts began to

show up in the mid-1980's. In 1980, only 10

interstate banking firms operated offices in rural

counties. These banking firms had interstate

branching or MBHC networks operating before

restrictions were imposed by the McFadden Act of

1927 and the Bank Holding Company Act of 1956.

By 1986, 51 interstate banking firms operated 2,347

bank offices in rural America. The importance of

interstate banking organizations will probably grow

over the next several years as nationwide banking

triggers go into effect in more States.

30
Table 10—Banking firms with rural offices by geographic coverage, size, and lending

experience

1980 1986

Banking firm characteristics Firms Offices Firms Offices

Number

Total 7,658 17,154 6,830 19,055

Local (Intracounty) firms 6,892 10,777 5,663 9,459

Single-office banks 4,686 4,686 3,595 3,595

Muitioffice firms 2,206 6,091 2,068 5,864

Multlcounty banking firms 766 6,377 1,167 9,596

Urban-based firms 340 3,854 383 5,327

Interstate firms 10 556 51 2,347

Asset size of banking firms:

Small (under $100 million) 7,196 11,597 6,001 10,051

Medium ($100-$1,000 million) 330 2,564 648 3,741

Large (over $1 billion) 132 2,993 181 5,263

Banking firms with expertise in:

Agricultural lending 3,763 5,084 2,979 4,350

Commercial and industrial lending 666 2,582 803 4,423

Note: The table includes those banking firms with at least one rural office.

Source: {10, 14).

Only rural bank offices are tabulated.

31
Rural Banks and Bank Markets During the 1980's

Changing Rural Bank Services

Bank deregulation has increased the number of rural bank offices overall, but some

communities still have only one or two banks.

Faced with credit needs, rural entrepreneurs, small

businesses, and even governments typically limit

their search to a fairly small group of financial

institutions-those serving their community. The

concept of banking markets is very fluid (17). The

geographic size of the credit market facing rural

firms varies with the size, type, and age of the firm,

the type of credit needed, and the suppliers of

credit. We adopted the county as a convenient

definition of the local rural market.

The distribution of commercial banks among rural

communities, and how these localized markets are

affected by deregulation, directly affects rural

development prospects. Table 11 describes the

distribution of metro and nonmetro counties by local

banking market characteristics.

In 1980, the average nonmetro county was served

by 4 banking firms, through 7 banking offices,

compared with 11 banking firms operating 46 offices

in the typical metro county. Changes in the

structure of the banking system during the 1980's

have not affected the average number of banking

firms competing in local markets, as many had

feared, but the average number of bank offices has

risen roughly 11 percent in nonmetro counties and

15 percent in metro counties. Nonetheless, 30

percent of nonmetro counties were served by only

one or two banking firms in 1986, leaving borrowers

vulnerable to oligopolistic lending behavior.

Relatively few rural borrowers enjoy the range of

banking sen/ice providers that the typical urban

borrower faces.

Deregulation has not directly affected the number of

banking firms in most rural markets, but it has

altered the structure of many local banking systems

in important ways. In 1980, over half of the rural

counties were served by banking systems that were

entirely locally based, leaving them susceptible to

credit problems when the local economy

experienced a downturn. While arguments can be

made for and against the presence of "outsider*

controlled bank offices in rural America, a tx>rrower

is probably best served by having the choice of

doing business with a local community bank or a

larger banking organization. Viewed from this

perspective, many rural borrowers found their

choices widening during the 1980's as nonlocally

based banking firms moved into more rural markets.

The percentages of rural counties served by

multicounty banking firms, urban-based firms, and

large firms (those with total assets in excess of $1

billion) all increased during 1980-86. The

percentage of rural counties served exclusively by

nonlocally based firms rose from 10 percent in 1980

to 14 percent in 1986.

An office of a large banking organization can

change the overall character of a rural banking

market, but the development process is affected

more by the behavior of individual local financial

institutions than by the average characteristics of all

such institutions. If a borrower can find one lender

willing and able to meet his or her credit needs at

an acceptable price, the "average" behavior of rural

lenders is unimportant. Some individuals argue that

rural firms do not hâve access to lenders willing to

evaluate loan applications for innovative

development projects. Urban firms have access to a

larger seled:ion of banks having more oxperience in

business lending, the argument goes, thus skewing

innovative investment toward urban areas.

Developments during the 19ao's may offer some

hope for rural areas. Both the number of rural

banking firms with expertise in commercial and

industrial lending (table 10) and the number of rural

counties served by such banking firms have

increased (table 11). This trend is partly because

commercial banks as a group increased their

commercial and industrial lending over this period.

But the movement of larger, urban-based banking

firms into more rural markets also influenced this

trend. The presence of a commercial and industrial

lender in a community does not, by itself, guarantee

that loan officers will fairly evaluate such loan

requests, but the firm's expertise and commitment to

business lending should help the loan evaluation

process.

The number of rural counties being served by one

or more "experienced" commercial and industrial

lenders has grown during the 1980's, but most

nonmetro counties are still without such a lender.

An average of only two banking firms with such

commercial and industrial lending experience were

in operation in nonmetro counties in 1986,

compared with seven in the typical metro county.

Thus, even those rural markets with an experienced

lender tend to have few local alternatives should that

lender turn down a loan application. The options

are to go to an inexperienced lender, who may be

reluctant to accept the added risks involved in

making an unfamiliar loan, or go to another bank

market, with the added inconvenience, cost, and risk

of rejection that tends to be associated with going

too far from home for a loan.

32
Table 11—Rural and urban county banking markets by number and type of banking firms

Bank market characteristics 1980

Metro

1986

Nonmetro

1980 1986

Counties with one or more bank offices

Banking firms per county

Regular bank offices per county

713

10.6

45.6

713

11.0

52.3

Number

2,356

4.1

7.3

2,362

4.1

8.1

Percent

Counties served by:

1-2 banking firms

3-5 banking firms

6-9 banking firms

10 or more banking firms

Counties served by:

Only locally based firms

Only nonlocally based firms

Only urban-based firms

A combination of local and

nonlocal banking firms

Counties served by one or more:

Multicounty banking firms

Urban-based banking firms

Large banking firms

Agricultural lending firms

Commercial and industrial lending firms

5.6 4.9 31.1 30.1

24.0 23.1 45.8 45,9

31.4 33.0 18.9 19.7

39.0 39.0 4.1 4.3

25.4 7.4 53.4 33.0

5.6 9.4 9.9 14.1

78.1 62.7 4.2 5.2

69.0 83.2 36.7 52.9

76.7 94.2 49.8 71.0

99.7 99.7 35.4 45.1

65.8 83.2 28.9 42.5

26.2 20.3 56.7 47.0

65.4 81.1 33.4 47.4

Note: In 1986, 1 metro county (Charles City, VA) and 22 nonmetro counties were without a regular commercial bank office.

Total percentages may not sum to 100 due to rounding.

Source: (10, 14).

33
Future Trends in Rural Banking

Rural Banking in a Dereguiated Environment

The numbers of U.S. banlcs and banking firms will continue to decline, but the Nation

will maintain many more independent banking organizations than other Industrial

nations, and financial services will remain available in rural markets.

As geographic deregulation proceeds, the number of

banks witi continue to fall, and measures of nationaland State-level concentration of bank assets will

increase. Yet, geographic deregulation has the

potential for being relatively unnoticed in much of

rural America The number of banks in a State is

less critical than the number serving a particular

community, and the latter counts should not decline

dramatically in many rural areas.

Rural financial markets are probably much more

integrated into national markets than was the case

10 or 20 years ago, particularly on the liability side.

Because people can place deposits by mail with

money market mutual funds or the country's largest

banks, an increase in New York City interest rates

will be noticed in rural Iowa. But that is not nearly

sufficient to support a conclusion that New York

banks are going to purchase banks in every Iowa

town.

Anecdotal evidence suggests that much of the

interstate merger action to date has involved large

banks that wish to create regional giants able to

compete with, and remain independent of, the

money center banks. The component firms may

have many rural branches or affiliates, but in such

cases rural consumers and businesses are merely

trading in one set of outside lenders for another.

Local concentration is not affected unless the

merger partners both serve the same rural market.

This situation will occur at times, but then antitrust

merger guidelines kick in, and the new bank may

have to spin off one of the local banks to maintain

competition.

A February 1987 Federal appeals court ruling may

hasten the 20-year trend toward more liberal

intrastate bank branching (app. table 4). The court

upheld an earlier decision by the Comptroller of the

Currency to let Deposit Guaranty National Bank of

Jackson, Mississippi, start a branch office at a

location not permitted by Mississippi law. The

Comptroller argued that banks were at a

disadvantage to S&Us, whteh now have powers very

similar to banks and can branch anywhere in

Mississippi. Although the Supreme Court refused to

set aside the decision, and most States permit

statewide branching by S&L's, the ruling does not

automatically invalidate existing legislation as it

applies to similar applications in other States. The

Comptroller received 100 similar applications and

approved 44 by mtd-1988.

Michigan passed a statewide branching law in

response to several pending applications. Arkansas

negated the Comptroller's decision by uniformly

restricting branching by banks and S&L's. Other

States, including Illinois and Texas, have threatened

legal action. Thus, the ultimate significance of the

Deposit Guaranty case is not yet known. But

whether or not court decisions or Federal legislative

and regulatory actions initiate nationwide branching,

further liberalization of branching laws at the State

level is expected for the future.

California, with large banks with statewide branching

networks dominating the State, does not necessarily

serve as the role model for States currently

liberalizing their banking laws. California's banking

system developed under economic and regulatory

conditions that no longer exist. Deposit deregulation

reduced the incentive to maintain large branching

networks, and mature banking systems that

developed under unit- or limited-branching

regulations produce strong local-market competitors

for any bank attempting to build a statewide

branching network. Thus, the banking systems of

new and mature branching States may approach a

middle ground, but considerable interstate variability

will probably endure for the foreseeable future.

What can we expect as banking systems adjust to

liberalized branching laws? The count of bank

organizations serves as a crude proxy for one

aspect of the potential decline in numbers of banks

if statewide branching becomes universal. The sum

of the numbers of independent banks and bank

holding companies active in each State represents

the number of banks that would exist if each MBHC

converted all of its affiliates into branches of the

MBHC's lead bank. Based on 1986 bank structure,

the number of banks would have declined by 23

percent (to 10,846) nationwide had MBHC's been

able and willing to consolidate their bank affiliates.

Liberalized branching also reduces bank numbers

by inducing mergers of currently unrelated banks.

The declines are potentially much larger than from

holding company consolidations. Comparing counts

of banks and total bank offices in statewide and

very limited branching States suggests why some

34
analysts predicted drastic reductions in the number

of banks when deregulation was first picking up

steam. On the other hand, entrepreneurs will

always start new banks In dynamic markets and

managers of banks merged out of existence

sometimes charter new banks in the same area. In

terms of where most businesses and consumers get

the bulk of their financial services, new and other

small banks may be largely irrelevant in markets

dominated by several large branch banks. But small

local banks remain serious competitors in many rural

communities.

The distribution of banks by age is one way of

summarizing the structural changes in banking that

we discussed above (app. table 11). Those States

with large proportions of banks established after

1972 include some States that allow ^atewide

branching. In other States, most banks have been

around since at least 1972. This latter group,

however, is not dominated by States that have

liberal branching laws.

Thus, the form of branching may be more marginal

than critical in issues such as local bank market

concentration and failing banks. Branching does

not imply, and is not a prerequisite for, rapid

economic growth. Rather, a growing economy

provides an environment in which entrepreneurs find

opportunities for starting new banks, regardless of

prevailing branching laws. Branching may help

banks to grow large, but the diversification made

possible by large size does not make banks immune

to problems. And, restrictive branching does not

prevent the development of large banking

organizations.

Technological change and deregulation also appear

to have made the financial environment less

conducive to comprehensive branch networks.

Some branches are being eliminated. Certain

financial services can be handled by ATM's, by

phone, or through the mail. If community banks

choose to remain Independent, regional and money

center banks are not going to rush in with new

branches to compete for their customers.

None of the above comments apply uniformly;

banking structures and economic conditions are too

diverse across States and regions. Nonlocal

banking organizations already have a strong

presence in rural markets in some States because

of past branching and MBHC activity. Banks in

areas with fast-growing economies will still prove

inviting targets for acquisition by outside banking

organizations that wish to compete in those markets.

But, even if the total number of banks declines by

as much as 4,000-5,000, the United States will

maintain many more thousands of independent

banking organizations than are found in other

industrial nations. And any such decline may not

be noticed in many rural markets.

35
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and Interstate Banking. Mlmeo. Board of Governors of the Federal Resen^e System, 1988.

(2) Auerbach. Robert D. Money, Banking, And Financial Markets. New York: Macmillan Publishing Co.,

1982.

(3) Banking Week, various issues.

(4) Barkley, David L, and Glenn T. Potts. "Will Branch Banking Increase Credit and Competition in Rural

Communities?" flura/Deve/opmenrPerspecf/ves, Vol. 1, Issue 3, June 1985^^

(5) Cargill, Thomas F., and Gillian G. Garcia. Financial Reform in the 1980's. Stanford, CA: Hoover

Institution Press, 1985.

(6) Conference of State Bank Supen/isors. A Profile of State-Chartered Banking. 11th ed. Washington, DC,

1986.

(7) Dunham, Constance R, 'Interstate Banking and the Outflow of Local Funds," Wew England Economic

Review. Federal Resen/e Bank of Boston, Mar./Apr. 1986, pp. 7-19.

(8) Elliott, J. Walter. Money, Banking, and Financial Markets. St. Paul, MN: West Publishing Co., 1984.

(9) Federal Deposit Insurance Corporation. 1987 Annual Report of the Federal Deposit Insurance Corporation.

1988.

(10) . S¿/mmao^ of Depos/fs, unpublished data tapes. Various years.

(11) Federal Reserve Bank of Philadelphia, Research Department. "Summary of Federal Legislation," Sa/ï/c/ng

Legislation and Policy, Vol. 8, No. 3, July-Sept. 1989, pp. 2-5.

(12) Federal Resen/e System. 74th Annual Report of the Board of Governors of the Federal Resen/e System.

Washington, DC, 1988.

(13) . San/cSfmcfure, unpublished data tapes. 1987.

(14) . Report of Condition and Report of Income, unpublished data tapes. Various quarters.

(15) Gajewski, Gregory R. "Outlook for Bank Failures," %r/cü/rura/Oüfto^^ AO-141, May 1988, pp. 23-25.

(16) Luckett, Dudley G. Money and ßanfr/ng. 3d ed. New York: McGraw-Hill Book Co., 1984.

(17) Rogers, G., R. Shaffer, and G. Pulver. Identification of Local Capital Markets for Policy Research," Tfte

fíeWevv^ of fleg/ona/Sfüd/es, Vol. 18, No. 1, Winter 1988, pp. 55-66.

36
Appendix A

Federal and State Banking Legislation^

Federal action as a response to State legislative

activity is not a new phenomenoa This appendix

reviews major Federal banking legislation enacted

since the Civil War. Appendix table 4 summarizes

recent State branching legislation.

The 18S3 National Currency Act, amended in 1864

as the National Bank Act, created the Comptroller of

the Currency office in the Treasury Department to

charter private national banks. The act established

minimum capital and reserve requirements for

national banks and permitted only riationa! banks to

issue the new national bank notes that would

replace the existing 10,000 different bank notes.

The Federal Reserve Act of 1913 established the

first true central bank. Unlike the First and Second

Banks of the United States, the Federal Government

could not own shares. Membership was required

for national banks and optional for State banks.

The Federal Reserve System was decentralized via

12 district banks and given rules to handle its

monetary control functions. Even today, the Federal

Reserve maintains considerable discretion in

controlling the money supply.

The National Bank Act helped national banks to

quickly dominate U.S. banking, with 90 percent of

bank assets in 1869. But because that law did not

mention branching. Comptrollers rejected

applications for branches from national banks.

Some States allowed State-chartered banks to have

branch offices, and by 1927 national banks were

down to a 39-percent share of bank assets.

The McFadden Act of 1927 let national banks

compete more fairly by authorizing home town

branching in States that gave similar powers to

State-chartered banks. The 1927 Act also expanded

the lending and deposit powers of national banks

and prohibited interstate banking by all banks

unless a State permitted it.

The Banking Act of 1933 established deposit

insurance, with the Federal Deposit Insurance

Corporation (FDIC) beginning operations on January

1, 1934. In what later became known as Regulation

Q, the 1933 Act prohibited interest on demand

deposits and instituted ceiling rates for time and

savings deposits. The McFadden Act's branching

clause was extended to let national banks in each

State follow whatever branching regulations

governed State-chartered banks in that particular

State. Bank holding companies (BHC's) were

^ This section draws on material from (2, 5, 16) and the

Competitive Banking Act of 1987.

brought into the regulatory framework, but the

regulations were weak. The regulations covered

only BHC*s that owned banks that were members of

the Federal Reserve and used a strict definition of

BHC (a corporation controlling a majority of stock,

voting shares, or election of directors of a member

bank). Most one-bank HC's were exempted 2 years

later.

The Home Owners Equity Act of 1933 created

savings and loan associations (S&L's) during the

Gre^ Depression. That act restricted nonmortgage

use of funds by S&L's to minimize threats to their

soundness and tried to increase funds dedicated to

housing.

The Glass-Steagall Act of 1933 strlved to minimize

credit risk by separating banking from commerce.

That is, banks could not engage in activities such as

the selling or underwriting of securities or the selling

of insurance. Congress tried unsuccessfully in 1988

to repeal or moderate this provision and may try

again in 1990. States and Federal regulatory

agencies may accomplish this goal if Congress fails

to produce legislation. Glass-Steagall also limited

insider loans and loans to individuals and set

regulattons governing acceptable collateral.

The Bank Holding Company Act of 1956 was the

first major Federal legislation covering BHC's. By

defining a BHC as an organization with 25-percent

ownership of at least two banks, the act initially was

limited to MBHC's. The Federal Reserve was given

supervision over all BHC's (not just those with

affiliates that were members of the Federal Reserve),

incfuding approval before acquiring additional banks

or nonbank firms "closely related to the business of

banking." MBHC's that already owned banks in

more than one State received permission to keep

those affiliates, but State approval was required for

future interstate purchases of banks. Most States

recently passed legislation taking advantage of this

loophole, but in 1956 the act effectively prevented

additional interstate mergers. The 1966

amendments widened the definition of holding

company to include organizations such as registered

investment companies and nonbusiness long-term

trusts. The Douglas Amendment of 1970 extended

coverage to OBHC's and more narrowly defined

nonbanking activities of BHC's.

The Bank Merger Act of 1960, its 1966 amendments,

and the 1963 Supreme Court decision in the

Philadelphia National Bank Case gave Federal

banking regulators responsibility for bank mergers

and required them to consider competitive effects.

The Change in Bank Control Act of 1978 increased

Government involvement by stating that a Federal

37
banking agency must approve any change in control

of a bank, whether or not HC's are involved. In

particular, chain banks were affected.

The Interest Rate Control Act of 1966 extended

Regulation Q deposit interest rate ceilings to S&L'sV

mutual savings banks, and uninsured banks. To

simplify the gathering of the deposits needed to

provide mortgage credit, S&L's were assigned

higher ceilings than were banks.

The Financial Institutions Regulatory Act of 1978

gave the FDIC and other financial institution

supen/isory agencies additional powers: civil

monetary penalties, cease and desist orders,

removal and suspension of insiders owning

significant bank stock, and approval of foreign

branches of State banks that were not FDIG

members. Previous powers had been limited to

examining insured banks, prescribing various rules

and regulations, vetoing some mergers and

consolidations, and subpoenaing officers,

employees, books, and records. Subsequent events

have made this law seem both timely and ineffective.

The Depository Institutions Deregulation and

Monetary Control Act of 1980 (DIDMCA) was part of

a more general deregulation movement; This law

phased out regulation Q interest rate ceilings on

time and savings accounts, authorized NOW

(negotiable order of withdrawal) accounts, and

eliminated State usury limits on many loan types

and State restrictions on deposit rates (the Jaw gawe

States 3 years to reimpose usury limits on loans).

The maximum account protected by Federal deposit

insurance was raised from $40,000 to $100,000.

S&L's gained new powers (such as making

commercial real estate and consumer loans) that

made them look much like banks. DIDMCA phased

in uniform reserve requirementis for all depository

institutions, eliminating the mernber/nonmember

issue and including nonbank financiallnstitutions,

and made Federal Reserve services (discount

window, check clearing) available to all depository

institutions at uniform rates.

The Depository Institutions Act of 1982 introduced

the money market deposit account so that financial

institutions could better compete with money market

funds, removed Regulation Q differences between

banks and other depository institutions, and

extended or enhanced the powers of S&L's and

savings banks in areas such as commercial loans

and variable rate mortgages. By overriding State

restrictions on enforcing due-on-sale clauses in

mortgage contracts. Congress tried to help thrifts

get rid of some long-term, low-rate mortgages. An

emergency 3-year package of new powers (net

worth certificates, financial assistance, formerly

forbidden combinations of mergers and acquisitions

that crossed State lines or industries, and charter

conversion) helped FDIC and FSLIC cope with failing

and troubled firms. Restrictions on loan size to a

single borrower, insider loans, and real estate loans

were relaxed for national banks.

The Competitive Equality Banking Act of 1987

(CEBA) recapitalized FSLIC, allowing it to raise

almost $11 billion to close insolvent S&L's, but those

funds quickly proved insufficient. And a 1-year

moratorium preventing banks from undertaking new

nonbanking powers in areas of real estate, securities

undenwriting, and insurance did not give Congress

enough time to rewrite Glass-Steagall. CEBA also

eliminated the nonbank bank loophole by redefining

"bank" in the 1956 Act, required that depositors have

their funds made available to them within specified

timeframes, and helped small agricultural banks

sun/ive by letting some amortize loan losses over 7

years. If State regulators agreed, interstate

purchases of failing, large banks were allowed.

CEBA addressed both the future prospects and

present problems of thrifts, calling for stricter

regulations in areas such as appraisals, generally

accepted accounting procedures, and minimum

capital standards, while simultaneously helping weak

S&Us by promoting the restructuring of troubled

debt and capital forbearance when local economic

conditions depress operating capital.

The Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 provided considerably

more resources (including $55 billion of borrowing

authority) to handle insolvent S&L's {11). It also

restructured the regulatory framework in an attempt

to prevent a repeat of this financial disaster. The

Federal Home Loan Bank Board and its insurance

arm (Federal Savings and Loan Insurance

Corporation) were abolished. Supervisory aspects

of those agencies were moved into the new Office

of Thrift Supervision, but as part of the Department

of the Treasury rather than an independent agency.

The FDIC received responsibility for insuring both

S&L's and banks, through the new and recapitalized

Savings Association Insurance Fund and the

renamed and separately funded Bank Insurance

Fund, respectively. The Resolution Funding

Corporation, Resolution Trust Corporation, and the

latter's Oversight Board were established to manage,

sell, and liquidate insolvent thrifts and the hundreds

of billions of dollars in thrift assets that were

expected to be left behind in this process. The

regional Federal Home Loan Banks remained intact,

but in their role as lenders to thrifts (and to

qualifying banks and credit unions) rather than as

regulators, and to be overseen by a new

independent agency called the Federal Housing

Finance Board. The FDIC also preempts State laws

in determining permissible activities for Statechartered thrifts. S&L's cannot make additional

investments in junk bonds, and undercapitalized

thrifts (and banks) can no longer obtain brokered

deposits or offer interest rates on deposits much

higher than those paid by their competitors.

38
Appendix B

Data Sources and Concepts

We used data from three major sources for this

report. The primary data source for information on

changes in the structure of statewide banking

systems was the IMS Bank Structure file maintained

by the Federal Reserve Board. This file begins at

the end of 1959 and is updated daily with new

information whenever there is a change pertaining to

one of the pieces of nonfinancial information (such

as bank name, holding company number, or

membership in the Federal Reserve System) used to

describe a bank (or bank branch). This file also

tracks various transactions that can befall banks

(such as openings of new banks or mergers).

The IMS Bank Structure database is organized so

that one can get either a snapshot (current values

of structure items for all banks on a designated

date) or a list of all occurrences satisfying specified

change or transaction criteria during a given period.

We first took a snapshot for the end of 1986; it

included all banks active some time during 1960-86.

This information was matched to four other data

extracts based respectively on change in holding

company number» change in office status, banks

absorbed as branches of other banks, or any sort of

transaction. In each case, we specified the 1960-86

timeframe, but the absorption variable was available

only as of June 30, 1972. Bank failures should and

do show up in the structure file, but FDIC

information was more easily obtained and more

accurate.

Our analysis of rural banking systems required the

merging of two separate filés. We derived location

of bank offices from FDIC's yeariy Summary of

Deposits reports (TO). However, because

information on assets and liabilities is not available

for individual bank offices, we used the aggregate

data for the banking firm, as reported in the Federal

Reserve Board's Reports of Condition and Income,

to describe rural banks' structural and operational

characteristics (74). Thus, the smallest branch

office is endowed with the characteristics of the

entire banking organization.

To describe the basic character of the rural banking

system, we have further classified banking firms

according to their geographic size (local firms

serving only one county, multi-county firms, and

interstate banking firms), their base of operations

(urban-based bank organizations, for example), and

their lending expertise. The latter two classifiers

need some explanation. Whether a banking firm is

urban-based or not depends upon its organizational

structure and the location of its assets. Non-MBHC

banks headquartered in metro counties are

considered to be urban-based. For MBHC

organizations, the headquarters of the lead bank (an

affiliate with assets over twice the size of any other

affiliate) determines whether the banking firm is

urban-based or not. For MBHC's with no lead bank,

urban-based firms are those with more than twothirds of their total assets held by affiliates

headquartered in metro areas. Hate that this

definition does not consider the rural branches of all

MBHC affiliates headquartered in urban areas to be

urban-based. The geographic character of the

entire MBHC determines whether a specific branch

is affiliated with an urban-based bank organization.

Banks with expertise in agricultural lending and

commercial and industrial (C&l) lending are also of

interest. Because there is no commonly accepted

measure of a bank's lending expertise, we have

adopted rather arbitrary proxies. A bank is

assumed to possess expertise in making agricultural

loans if 25 percent or more of its loan portfolio is in

farm loans, as FDIC defines an agricultural bank. A

banking firm possesses C&l lending expertise if

more than 19 percent of its total asset base is in

C&l loans (more than one standard deviation above

the mean for banks with less than $500 million in

assets in 1980).

39
Appendix table 1 —Branching and banic hoiding company affiliation by State, June 30, 1986

Banks

headBanks wlthmtra- inter- MBHC

Branching law/State quartered No county county restrict- Banks affiliated within State branches branches branches ions^ No HC OBHC MBHC^

Number —-Percent" Type ""Percent"

Unit banking 3,491 82 17 1 NA 30 33 37

Coforado 460 78 22 1 none 21 28 50

Kansas 619 77 23 0 1.2 29 63 9

Montana 169 86 14 1 none 22 31 47

North Dakota 177 54 30 16 none 25 48 27

Texas 1,957 85 15 0 none 34 24 42

Wyoming 109 97 3 0 none 20 25 55

Very limited branching

Arkansas

5,524

258

47

33

46

64

7

2

NA

1

33

36

37

45

30

19 ii» 371 36 55 9 2 39 30 31

1,226 54 43 3 none 35 34 31 Kentucky 331 27 72 2 2 35 45 21 Louisiana 301 27 70 3 2,3 38 51 11 Michigan _ 354 14 48 38 none 34 12 54 Minnesota^ 732 64 29 7 none 23 50 27 Missouri - 639 45 52 3 1 27 32 41 Oklahoma^ , 529 68 29 3 1,2 33 55 12 West Virginia^

Wisconsin^

215 41 55 4 1 53 15 32

568 54 34 12 none 33 28 39

Less limited branching

Indiana^

iQwa^

1,753

365

34

24

48

70

18

7

NA

1

37

35

39

52

25

13

616 52 37 10 1 26 50 25 New Hampshire^ 57 18 40 42 1 33 26 40 NewJVIexico

Ohio^

95 27 65 7 none 22 34 44

311 26 48 26 none 51 18 31 Pennsylvania 309 23 40 38 1 50 26 24

Statewide fby merger) 1,644 46 43 12 NA 37 40 23 Alabanja^ 233 42 47 11 none 41 40 19 Florida^ , 383 32 61 7 none 37 27 36 Nebraska^ 443 75 20 5 1,2 29 59 12 South Dakota

Tennessee^

133 64 17 20 none 41 37 23

284 24 64 12 1,3 32 45 23 Virginia 168 26 39 36 none 61 13 26

Statewide branching 1,750 24 43 32 NA 49 31 19 Alaska 16 13 31 56 none 38 31 31 Arizona 53 42 40 19 none 45 51 4

California 445 34 40 26 none 58 34 8

Conneciicut 57 30 53 18 none 56 21 23 Delaware 27 67 11 22 none 33 15 52

District of Columbia 19 26 74 0 none 32 53 16 Hawaii 22 23 27 50 none 59 18 23 Idaho 25 16 28 56 none 52 20 28 Maine 24 4 33 63 none 33 29 38 Maryland ^ 90 12 51 37 none 53 13 33 Massachusetts

MississippF^

99 8 68 24 none 24 26 49

146 16 50 34 4 48 51 1

Nevada _ 16 25 31 44 none 56 25 19 New Jersey^

NewYorl^

122 9 43 48 1 30 30 39

191 26 35 39 3 43 29 28

North Carolina 65 18 38 43 none 69 25 6

Oregon 66 29 44 27 none 64 21 15

Rhode Island 14 7 50 43 1 29 50 21 Soirth Carolina 75 20 43 37 none 60 36 4

Utah 58 29 34 36 none 50 29 21 Vermont 25 12 36 52 none 20 44 36 Washington^ 95 23 • 58 19 none 58 27 15

Total 14,162 51 38 11 NA 35 36 29

NA = Not applicable.

' Multibank holding cornpany (MBHC) restrictions: 1 = 1^^

acquisition of banks less than 5 years old ^ 3 = geographic j^strictions on HG^opersrtionSi 4 = totally pro^

^ Includes HC's with^interstsrte affiliates. ^ Liberalized bank Jsranching laws passed since 4960. See also figures 1 and 2.

'^ Mississippi forbids MBHC*s within the State,^ but one Mississippi HG operates a Nebraska credit card bank in addition ta its

one Mississippi bank affiliate.

Source: {10).

40
Appendix table 2—Interstate banking legislation

Interstate banking not permitted: Hawaii, iowa, Kansas, Montana, Nortli Dakota (a 1987 iaw permits a

grandfathered interstate holding company to sell its North Dakota affiliates to holding companies in other states).

Regional reciprocal: Alabama (1987), Arkansas (1989), Connecticut (1983), District of Columbia (1985; national

open in 1986 for specified large investments), Florida (1985), Georgia (1985), Maryland (1985), Massachusetts

(1983, new allowed), Minnesota (1986, new allowed), Mississippi (1988), Missouri (1^86), New Hampshire (1987,

new entry permitted), North Carolina (1985), South Carolina (1986), Tennessee (1985, new entry forbidden but

some new expansion permitted after initial acquisition), Virginia (1985), Wisconsin (1987, forbids new entry).

National reciprocal: California (1991 ; regional in 1987), Delaware (1990; regional reciprocal In 1988; new credit

card banks in 1981), Illinois (1990; regional reciprocal without new entry in 1986), Indiana (1992; regional

reciprocal in 1986), Kentucky (1986; regional as of 1984 with new prohibited), Louisiana (1989- regional in 1987

but no new entry), Michigan (1988; regional in 1986, new permitted), Nebraska (199Í; regional reciprocal in

1990), New Jersey (1988; regional reciprocal in 1986 with new entry), New York (1982, new allowed), Ohio (1988;

regional reciprocal in 1985, with new entry also on a reciprocal basis), Pennsylvania (1990; regional in 1986, new

allowed), Rhode Isiand (1988; regional reciprocal in 1984), South Dakota (1988, witti new entry; two new and one

acquired credit card banks in 1983), Vermont (1990; regional reciprocal 1988), Washington (1987), West Virginia

(1988, does not allow new entry).

National open: Alaska (1982), Arizona (1986 with new in 1992), Colorado (1991 with new entry in 1992; regional

reciprocal In 1988), Idaho (1988, forbids new entry; regional reciprocal in 1985), Maine (1984; national reciprocal

in 1978), Nevada (1989 with new in 1990; regional reciprocal in 1985), New Mexico (1990; new in 1992),

Oklahoma (1987, prohibits new entry), Oregon (1989; national reciprocai interstate branching in 1985; regional

open in 1986), Texas (1987), Utah (1988; regional reciprocal in 1984), Wyoming (1987).

Note: States are grouped by legislation on the books, but in some cases not yet in effect.

Source: (Í, 3).

41
Appendix table 3—Bank location by State^

January 1. 1960 December 31. 1986

state Rural Urban total Rural Urban Total

Number

Alabama 179 58 237 156 73 229

Alaska 11 2 13 6 9 15

Arizona 3 5 8 8 45 53

Arkansas 200 31 231 206 50 256

CálHfornia 21 89 110 32 439 471

Colorado 109 52 161 157 313 470

Connecticut 23 40 63 11 49 60

Delaware 12 7 19 7 23 30

District of Columbia 0 12 12 0 19 19

Florida 114 174 288 72 325 397

Georgia 292 65 357 253 114 367

Hawaii 0 6 6 3 19 22

Idaho 29 3 32 18 6 24

Illinois 530 419 949 540 677 1,217

Indiana 297 147 444 223 133 356

Iowa 546 86 632 499 ll4v 613

Kansas 509 76 585 481 130 611

Kentucky 294 54 348 255 76 331

Louisiana 138 48 186 162 135 297

Maine 39 9 48 14 8 22

Maryland 76 63 139 25 66 91

Massachusetts 50 114 164 20 80 100

Michigan 242 139 381 175 169 344

Minnesota 547 131 678 477 255 732

Mississippi 178 13 191 123 18 141

Missourr 434 174 608 402 207 609

Montana 103 12 115 146 23 169

Nebraska 358 30 388 373 64 437

Nevada 2 5 7 5 13 18

New Hampshire 58 10 68 26 25 51

New Jersey 62 193 255 0 114 114

New Mexico 49 3 52 79 15 94

New York 197 204 401 54 Í42 196

North Carolina 151 40 191 30 35 65

North Dakota 140 13 153 143 33 176

Ohio 341 246 587 162 140 302

Oklahoma 298 83 381 312 207 519

Oregon 30 21 51 26 33 59

Pennsylvania 317 394 711 107 195 302

Rhode Island 1 7 8 2 12 14

South Carolina 110 28 138 41 30 71

South Dakota 158 15 173 121 12 133

Tennessee 248 42 290 193 90 283

Texas 585 381 966 684 1,276 1,960

Utah 21 25 46 16 44 60

Vermont 55 1 56 20 5 25

Virginia 238 71 309 97 73 170

Washington 50 35 85 37 56 93

West Virginia 135 46 181 151 61 212

Wisconsin 388 164 552 324 242 666

Wyoming 49 4 53 85 21 106

Total 9,017 4,090 13,107 7,559 6,513 14,072

Rural or urban location is determined by whether the bank's headquarters Is in a Metropolitan Statistical Area (MSA^; The

rural/urban division of counties varies over time as new MSA's are designated. The table applies definitions in effect in 1960

and 1986, respiBctlvely.

Source: {13).

42
Appendix table 4—Dates of change In State bank branching legislation

Unit banking: Colorado, Montana, Wyoming.

Very limited branching: Georgia (less limited in 1975 for populous, contiguous counties), Illinois (unit before

1982), Kentucky, Louisiana, Missouri, Oklahoma (unit until 1983), Texas (unit until 1987, holding companies can

consolidate at the county level), Wisconsin (before 1982, only In a town with no banks).

Less limited branching: Arkansas (unit until 1973; very limited 1973-94), Indiana (very limited until 1985; statewide

by merger in 1989), Iowa (unit before 1972), Minnesota (unit until 1980; very limited branching before 1987), New

Mexico.

Statewide branching by merger: Alabama (very limited before 1981; county option for de novo branching within

a county), Florida (unit before 1977; limited until 1981), Kansas (unit until 1987), Nebraska (unit until 1983; very

limited before 1985), North Dakota (unit until 1987), South Dakota, Tennessee (very limited until 1985, after which

holding companies can convert affiliates to branches), Virginia (less limited de novo branching in 1978).

Statewide branching: Alaska, Arizona, California, Connecticut, Delaware, District of Columbia, Hawaii, Idaho,

Maine, Maryland, Massachusetts (limited until 1984), Mtehigan (very limited before 1987; holding companies can

convert affiliates to branches in 1987; statewide in 1988), Mississippi (less limited until 1986; statewide by merger

1986-89; only State that still prohibits multibank holding companies), Nevada, New Hampshire (very limited until

1979; less limited 1979-87), New Jersey, New York (less limited until 1976), North Carolina, Ohio (very limited

before 1979; less limited 1979-89), Oregon, Pennsylvania (less limited before 1990), Rhode Island, South Carolina,

Utah, Vermont, Washington (closer to statewide by merger before 1985), West Virginia (unit before 1982; very

limited 1982-87; less limited 1987-91).

Note: States are grouped according to legislation on the books, but not yet in effect in some cases. Information in

parentheses indicates when laws did or will take effect.

Source: {1,3).

43
Appendix table 5--New banks by State and year

State 1960-72 1973-76 1977-80 1981-83 1984-86 Total

Number

Alabama 48 30 20 10 14 122

Alaska 3 3 0 2 2 10

Arizona 19 8 14 16 19 76

Arkansas 25 8 3 4 4 44

Callfomia 165 82 104 171 83 605

Colorado 123 68 82 118 55 446

Connecticut 23 12 3 2 16 56

Delaware 2 0 2 14 13 31

District of Columbia 4 3 1 3 1 12

Florida 291 178 30 73 109 681

Georgia 69 22 2 4 23 120

Hawaii 12 2 3 1 0 18

Idaho 3 2 4 1 1 11

Illinois 224 80 40 17 12 373

Indiana 12 12 5 1 2 32

Iowa 23 2 2 3 12 42

Kansas 36 11 9 6 29 91

Kentucky 12 7 4 4 5 32

Louisiana 55 18 17 20 26 136

Maine 11 3 0 0 2 16

Maryland 19 7 3 4 6 39

Massachusetts 34 6 2 6 6 54

Michigan 26 35 20 8 6 95

Minnesota 54 16 13 7 7 97

Mississippi 16 21 6 2 1 46

Missouri 68 38 19 22 24 171

Montana 33 11 8 4 4 60

Nebraska 33 12 22 6 7 80

Nevada 2 1 5 6 2 16

New Hampshire 15 6 4 4 5 34

New Jersey 78 33 4 3 13 131

New Mexico 22 11 7 7 7 54

New York 33 17 11 9 38 108

North Carolina 13 17 2 8 10 50

North Dakota 17 2 10 3 0 32

Ohio 23 11 7 10 8 59

Oklahoma 61 35 29 34 37 196

Oregon 16 6 40 15 1 78

Pennsylvania 11 3 1 3 10 28

Rhode Island 15 3 1 2 3 24

South Carolina 14 7 2 1 9 33

South Dakota 6 3 2 2 5 18

Tennessee 29 34 10 7 10 90

Texas 287 139 113 280 313 1,132

Utah 23 22 28 6 6 85

Vermont 0 0 2 0 0 2

Virginia 75 44 16 9 18 162

Washington 51 15 23 8 8 105

West Virginia 27 18 16 8 5 74

Wisconsin 73 24 15 8 7 127

Wyoming 18 7 25 10 12 72

Total 2,352 1,155 811 972 1,016 6,306

Source: {13).

44
Appendix table 6—Failed banks: Type, location, and year of failure, by State

Type' Location

1983 1984 1985 1986

JanuaryState Agri- Nonagri- Rural Urban July Total

cultural cultural 1987

Number

Alabama 2 5 6 1 1 1 2 1 2 7

Alaska 0 1 0 1 0 0 0 1 0 1

Arizona 0 0 0 0 0 0 0 0 0 0

Arkansas 3 1 3 1 1 2 1 0 0 4

California 1 28 1 28 5 6 7 8 3 29

Colorado 6 17 10 13 1 2 6 7 7 23

Connecticut 0 0 0 0 0 0 0 0 0 0

Delaware 0 0 0 0 0 0 0 0 0 0

District of Columbia 0 0 0 0 0 0 0 0 0 0

Florida 0 8 0 8 0 2 2 3 1 8

Georgia 0 0 0 0 0 0 0 0 0 0

Hawaii 0 0 0 0 0 0 0 0 0 0

Idaho 1 0 1 0 0 0 0 1 0 1

Illinois 8 9 8 9 6 6 2 1 2 17

Indiana 4 3 3 4 0 2 1 1 3 7

Iowa 26 2 26 2 0 3 11 10 4 28

Kansas 32 8 32 8 1 7 13 16 3 40

Kentucky 2 2 2 2 1 1 0 2 0 4

Louisiana 3 14 8 9 0 1 0 9 7 17 Maine 0 0 0 0 0 0 0 0 0 0

Maryland 0 0 0 0 0 0 0 0 0 0

Massachusetts 0 1 1 0 0 0 0 0 1 1

Michigan 0 1 1 0 0 1 0 0 0 1

Minnesota 18 4 19 3 1 4 6 5 6 22 Mississippi 0 2 1 1 0 1 0 0 1 2

Missouri 21 6 22 5 1 2 9 10 5 27 Montana 3 2 5 0 1 0 0 1 3 5

Nebraska 25 0 24 1 1 5 13 6 0 25 Nevada 0 1 0 1 1 0 0 0 0 1

New Hampshire 0 0 0 0 0 0 0 0 0 0

New Jersey 0 1 0 1 1 0 0 0 0 1

New Mexico 1 4 4 1 0 0 3 2 0 5

New York 0 3 0 3 0 0 2 0 1 3

North Carolina 0 0 0 0 0 0 0 0 0 0

North Dakota 1 0 1 0 0 0 0 0 1 1

Ohio 0 1 0 1 0 0 0 0 1 1

Oklahoma 23 28 27 24 1 5 13 17 15 51 Oregon 3 10 5 8 4 5 3 1 0 13 Pennsylvania 0 0 0 0 0 0 0 0 0 0

Rhode island 0 0 0 0 0 0 0 0 0 0

South Carolina 0 0 0 0 0 0 0 0 0 0

South Dakota 3 1 2 2 1 1 0 1 1 4

Tennessee 3 28 17 14 12 11 5 3 0 31 Texas 19 59 29 49 3 6 12 26 31 78 Utah 2 5 2 5 0 1 1 3 2 7

Vermont 0 0 0 0 0 0 0 0 0 0

Virginia 0 0 0 0 0 0 0 0 0 0 Washington 1 0 1 0 0 0 0 1 0 1

West Virginia 0 1 1 0 0 1 0 0 0 1

Wisconsin 1 1 2 0 0 0 1 1 0 2

Wyoming 2 13 10 5 1 2 5 7 0 15

Total 214 270 274 210 44 78 118 144 100 484

A bank is agricultural if its ratio of farm loans (production loans plus real estate loans secured by farmland) to total loans

exceeds the average for all insured U.S. commercial banks. The reverse is true for nonagricultural banks.

Source: Loan data were compiled from (14). Failed-bank data were obtained from the Federal Deposit Insurance

Corporation.

45
Appendix table 7—Banks absorbed as branches of other banks, by State and year

state 1972-76 1977-80 1981-83 1984-86 Total

Number

Alabama 4 0 51 55 110

Alaska 1 0 0 1 2

Arizona 2 0 2 1 5

Arkansas 2 1 3 4 10

California 17 25 26 22 90

Colorado 0 0 0 4 4

Connecticut 5 8 13 7 33

Delaware 1 0 2 0 3

District of Columbia 0 0 1 0 1

Florida 0 201 149 139 489

Georgia 16 9 44 53 122

Hawaii 0 0 0 0 0

Idaho 2 2 1 3 8

Illinois 0 7 8 27 42

Indiana 13 7 16 34 70

Iowa 11 4 14 24 53

Kansas 1 0 1 11 13

Kentucky 7 2 8 7 24

Louisiana 2 2 3 10 17

Maine 5 2 9 9 25

Maryland 6 14 16 6 42

Massachusetts 13 8 14 25 60

Michigan 9 4 10 25 48

Minnesota 0 1 14 23 38

Mississippi 22 12 15 19 68

Missouri 1 2 10 130 143

Montana 0 0 0 0 0

Nebraska 0 0 1 40 41

Nevada 0 1 0 0 1

New Hampshire 3 5 12 7 27

New Jersey 48 28 32 20 128

New Mexico 0 0 1 3 4

New York 69 24 16 19 128

North Carolina 19 15 17 15 66

North Dakota 0 1 0 0 1

Ohio 29 105 43 46 223

Oklahoma 0 0 1 24 25

Oregon 6 3 12 19 40

Pennsylvania 58 30 22 39 149

Rhode Island 0 0 0 1 1

South Carolina 11 7 14 7 39

South Dakota 4 6 9 13 32

Tennessee 1 5 21 57 84

Texas 1 0 1 27 29

Utah 8 14 18 12 52

Vermont 12 2 0 2 18

Virginia 26 70 48 36 180

Washington 22 6 9 11 48

West Virginia 0 0 13 23 36

Wisconsin 5 4 39 38 86

Wyoming 0 0 0 0 0

Total 462 637 759 1.098 2,956

Note: Data for this table begin June 30, 1972.

Source: (73).

46
Appendix table 8—Banks getting a new holding company number by State, location, and year

Location Prior affiliation*

Rural Urban indepen- Holding

state dent company 1960-72 1973-76 1977-80 1981-83 1984-86i Total

Number

Alabama 142 105 222 25 30 50 17 67 83 247

Alaska 2 7 9 0 1 0 2 3 3 9

Arizona 2 26 23 5 3 1 2 6 16 28

Arkansas 155 55 183 27 16 3 15 75 101 210 California 6 176 163 19 38 8 14 88 34 182 Colorado 165 310 333 142 117 57 79 117 105 475

Connecticut 4 46 40 10 11 5 7 7 20 50

Delaware 6 14 12 8 1 1 1 13 4 20 District of Columbia 0 23 11 12 0 5 1 9 8 23 Florida 135 775 609 301 262 200 82 182 184 910

Georgia 222 149 281 90 16 11 64 124 156 371 Hawaii 0 9 9 0 2 2 3 1 1 9

Idaho 9 4 12 1 2 3 2 5 . 1 13 Illinois 355 730 892 193 121 54 129 387 394 1,085 Indiana 195 158 293 60 20 8 22 104 199 353 Iowa 468 117 507 78 142 71 128 151 93 585 Kansas 411 139 482 68 102 78 132 144 94 550 Kentucky 199 73 238 34 9 8 21 102 132 272 Louisiana 106 118 196 28 15 4 17 101 87 224 Maine 33 17 36 14 21 4 0 7 18 50

Maryland 19 52 52 19 16 10 7 20 18 71

Massachusetts 33 116 116 33 44 37 15 28 25 149 Michigan 152 192 239 105 37 88 63 78 78 344 Minnesota 375 181 494 62 122 33 111 179 111 556 Mississippi 70 14 82 2 4 1 10 49 20 84 Missour 411 358 576 193 160 124 136 163 186 769 Montana 100 11 97 14 31 6 11 45 18 111 Nebraska 359 62 368 53 108 64 105 74 70 421 Nevada 0 5 5 0 1 0 0 2 2 5

New Hampshire 31 25 52 4 7 7 9 12 21 56

New Jersey 4 145 136 13 48 15 7 34 45 149 New Mexico 66 15 69 12 22 4 9 26 20 81 New York 50 140 160 30 73 41 16 25 35 190 North Carolina 13 17 29 1 10 3 0 11 6 30 North Dakota 104 20 104 20 23 9 30 35 27 124 Ohio 137 178 267 48 96 48 38 63 70 315 Oklahoma 270 189 391 68 47 43 123 158 88 459 Oregon 11 22 31 2 4 1 6 16 6 33 Pennsylvania 64 148 180 32 23 3 4 82 100 212 Rhode Island 2 15 14 3 11 0 0 2 4 17

South Carolina 18 25 40 3 7 1 0 10 25 43 South Dakofa 90 5 86 9 25 8 11 36 15 95 Tennessee 167 109 254 22 30 34 17 107 88 276 Texas 497 1,031 1,211 317 169 172 274 517 396 1,528 Utah 5 27 29 3 8 5 8 6 5 32 Vermont 18 6 22 2 1 1 0 11 11 24 Virginia 113 127 185 55 94 41 49 24 32 240 Washington 10 37 42 5 2 1 2 25 17 47 West Virginia 78 45 114 9 5 4 0 30 84 123 Wisconsin 251 269 433 87 111 31 84 126 168 520 Wyoming 82 18 81 19 29 12 22 30 7 100

Total 6,215 6,655 10,510 2,360 2,297 1,420 1,905 3,717 3,531 12,870

Prior affiliation is independent if the bank was not previously part of a holding company, and holding corripany if the bank

was already an affiliate of either a one-bank or multibank holding company. Some banks appear several times because they

had more than one holding company number change. ^^•--'*-* * . « .

company affiliation back to independent status.

Source: (13).

This table does not reflect cases where banks went from holding

47
Appendix table 9—Interstate multibank holding companies, by State and location, December 31, 1986

Unadjusted interstate AdjiBted interstater

state Total tsanks Tota

Rural

1 branches'

Utton Total

Total banks Tota

Rural

branches'

Urban Total

Totalassösr

Rural Url3an Total Rural urban Total Rural Urban Totel

KIi imHâr KAíliirsñ Hñllar^ ^___

Alabama 0 0 0 0 0

f «Wf ff

0 0 0 0 0 0 0 0 0 0

Alaska 1 2 3 4 8 12 1 2 3 4 8 12 225 522 747

Arizona 0 7 7 0 256 256 0 7 7 0 256 256 0 8,413 8,413

Arkansas 1 1 2 0 12 12 1 1 2 0 12 12 10 486 497

California 0 11 11 0 ^305 2.305 0 8 8 0 2,304 ^304 0 172,573 172,5/3

Cobrarlo 6 47 53 4 17 21 6 47 53 4 17 21 278 7,644 7,922

Connecticut 2 9 11 10 435 445 2 9 11 10 435 445 338 23,073 23,411

Delaware 3 21 24 0 66 66 0 8 8 0 31 31 0 12.880 12,880

District of GolumlDia 0 7 7 0 73 73 0 7 7 0 73 73 0 4,912 4.912

Florida 8 50 58 21 835 856 8 34 42 21 834 855 865 33,275 34.139

Georgia 8 18 26 32 518 550 8 18 26 32 518 550 1,041 27,418 28.458

Hawaii 0 1 1 0 14 14 0 1 1 0 14 14 0 605 605

Idaho 0 3 3 0 187 187 0 3 3 0 187 187 0 5,32B 5,328

Illinois 8 29 37 6 38 44 8 8 16 6 10 16 713 8,719 9,431

Indiana 5 10 15 15 74 89 5 10 15 15 74 89 490 2,051 2.542

Iowa 8 5 13 6 21 27 8 5 13 6 21 27 567 1,864 2,430

Kansas 2 0 2 2 0 2 2 0 2 2 0 2 85 0 85

Kentucky 5 16 21 20 138 158 4 12 16 11 77 88 315 5,556 5,871

Louisiana 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Maine 2 7 9 43 282 325 2 7 9 43 282 325 703 4,561 5,264

Maryland 1 12 13 4 666 670 1 7 8 4 160 164 64 5,374 5,438

Massachusetts 3 17 20 14 429 443 3 14 17 14 423 437 409 46,955 47,365

Michigan 35 75 110 146 1,091 1,237 23 18 41 82 213 295 1,473 5,651 7,124

Minnesota 55 47 102 40 78 118 55 47 102 40 78 118 3,558 31,326 34,884

Mississippi 0 1 1 0 78 78 0 0 0 0 0 0 0 0 0

Missouri 26 35 61 29 150 179 16 23 39 16 73 89 902 8,402 9.304

Moitana 18 7 25 9 7 16 18 7 25 9 7 16 1,700 1,252 ^952

Nebraska 3 5 8 1 24 25 3 3 6 1 24 25 84 1,613 1,696

Nevada 0 3 3 0 77 77 0 2 2 0 77 77 0 3,311 3,311

New Hampshire 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0

New Jersey 0 16 16 0 742 742 0 0 0 0 0 0 0 0 0

New Mexico 3 1 4 14 17 31 3 1 4 14 17 31 432 584 1,017

NewYori< 2 29 31 74 2,427 2,501 2 25 27 74 2,426 2,500 1,504 557,314 558,818

North Carolina 2 4 6 212 787 999 2 4 6 212 m 999 3,398 41,160 44,558

North Dakota 24 8 32 26 13 39 24 8 32 26 13 39 1,365 1,114 2,479

Ohto 20 39 59 86 1,425 1,511 17 32 49 65 985 1,050 ?,?ao 39,496 41,725

Okiahorra 1 1 2 0 4 4 1 1 2 0 4 4 6 1,380 1.386

Oregon 1 4 5 2 261 263 1 4 5 2 261 263 48 7,121 7.168

Pennsylvania 2 11 13 73 713 786 1 3 4 39 251 290 857 30,442 31.300

Rhode Island 0 4 4 0 ICO 100 0 3 3 0 100 100 0 10,723 10,723

South Carolina 2 3 5 1 208 209 1 3 4 1 208 209 185 4,285 4.470

South Dakota 1 5 6 0 67 67 1 2 3 0 67 67 26 2,967 ^994

Tennessee 0 8 8 0 148 148 0 8 8 0 148 148 0 6.618 6,618

Texas 25 280 305 3 119 122 0 0 0 0 0 0 0 0 0

Uah 0 6 6 0 208 208 0 6 6 0 206 208 0 7,369 7,369

Vermont 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Virginia 11 21 32 55 1,041 1,096 11 20 31 55 1,041 1,096 1,207 35,90/ 37,114

Washington 3 3 6 7 406 413 3 3 6 7 406 413 254 21,693 21,947

West Virginia 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Wisconsin 20 20 40 23 46 69 20 20 40 23 46 69 1,046 6,009 7,056

Wyoming 3 1 4 0 0 0 3 1 4 0 0 0 257 282 539

Total 320 911 1,231 982 16,611 17,593 264 452 716 838 13,176 14,014 26,638 1,198,2271,224,865

"Adjusted" data reflect the subtraction of credit card banks and other banks that apparently prcvkle less than lull seivtee. ^ Branch kxîaÈoons (rural or

urban) are assumed to match the headquarters office.

Source: (Ï4).

ThL», these counts are baccurate. "^ Asset data are s^regated at the headquarters k)caik>n.

48
Appendix table 10—Share of rural banking offices owned by urban-based banks, muttlbank holding

companies, and bank organizations, by State, June 30,1986

Count of

Share of rural bank offices controlled bvBanks with Urban4»sed Urban43ased

Branching law/State rural urban multibank holding bank

offices headquarters companies organizations

Number

Unit banking 2-9« .3 9.7 9.9 Colcxado 199 .5 18.6 18.6

l^insas 592 .2 29 30

Montana 163 .0 14.7 14.7

North Dakota 238 1.3 13.0 13.9

Texas 751 .1 11.6 11.6

Wyoming 102 0 29 29

Veiy limited branching

Mansas'

6,306

482

3.0

.2

14.1

3.1

14.6

31

Georgia

Illinois^

589

791

11.4

.5

21.7

5.4

221

5.7

kfentucky 652 0 5.1 5.1 Louisiana 469 23 1.3 34

Michigan , 698 10.3 424 43.8 Minnœota' 630 .2 121 122 Missouri 692 1.0 21.4 214 Oklahoma' , 422 .7 1.9 26

West Virginia' 291 1.4 9.6 10.3 Wisconan' 590 29 18.0 18.3

Less limited branching

Indiana^

3,250

686

122

1.0

18.2

31

21.4

39 Iowa' 852 1.2 4.8 5.8

New Hampshire' 124 161 31.5 33.1

New Mexico 248 0 8.5 8.5

Ohto* 720 30.4 47.4 50.1

Pennsylvania 620 226 20.6 31.5

Statewide n^ merger) 2-^ 226 29.3 322 Alabanja'

Florida^,

406

303

23.9

31.0

33.3

50.8

33.7

627 Nebraska' 495 3.6 3.2 3.8 South Dakota 269 23.0 21.2 23.8 Tennessee' 586 8.9 14.0 18.3 Virginia 639 44.8 54.3 55.1

Statewide branching 4,756 525 36.7 55.6

Alaska 85 67.1 14.1 753 Arizona 201 88.6 24.9 886 California 287 68.6 49.1 707 Connecticut 60 58.3 65.0 65.0

Delaware

District of Columbia^

69

0

55.1

0

24.6

0

56.5

0

HawaH 78 923 65.4 923 kJaho 247 63.2 628 63.2 Mäne 222 60.4 527 54.1 Maryland 157 41.4 36.3 64.3 Mœsachusetts'

MIssissippT

80

671

37.5

125

725

0

73.8

125

Nevada 57 78.9 29.8 789 New Jersey'- ^ 0 0 0 0

NewYort? 474 53.2 63.7 665 North Carolina 904 54.5 326 54.5

Oregon 256 57.0 50.4 590 Rhode Island 21 57.1 57.1 571 South Carolina 358 58.9 19.8 58.9 Utah 128 78.1 66.4 80.5 VemxDrt , 169 29.6 9.5 314 Washington' 232 60.3 5?2 629

Total 19,055 19.4 221 28.0

^ Indicates States that have libefalized their branching restrictions since 1960. ^ The Ostriíá of Columbia and New Jersey are oornpleteV

urban.

Source: {ICfj.

49
Appendix table 11- Banks open as of December 31,1986, by State and year established

State PrB-19ra' 1973-76 1977-80 1981-83 1984^ Total

Nwrtaer

Alabama 179 14 12 9 15 229

Alaska 10 2 0 1 2 15

Arizona 11 2 6 15 19 53

Arkansas 237 8 3 4 4 256

Callfbmla 103 50 90 152 76 471

Colorado 248 39 43 86 54 470

Connecticut 34 6 3 2 15 60

Delaware 10 0 1 9 10 30

District or Columt3ia 12 2 1 3 1 19

Florida 187 57 19 38 96 397

Georgia 319 15 2 3 28 367

Hawaii 17 2 2 1 0 22

Idaho 17 1 4 1 1 24

Illinois 1,093 73 32 13 6 1,217

Indiana 344 8 2 1 1 356

Iowa 594 2 2 3 12 613

Kansas 558 10 9 6 28 611

Kentucky 313 6 4 3 5 331

Louisiana 223 14 17 19 24 '¿at

Maine 19 2 0 0 1 22

Maryland 76 2 4 3 6 91

Massachusetts 89 2 2 2 5 100

Michigan 290 27 18 5 4 344

Minnesota 693 15 12 6 6 732

Mississippi 127 12 1 0 1 141

Missouri 545 17 13 14 20 609

Montana 144 9 8 4 4 169

Net>BSka 397 11 17 5 7 437

Nevada 7 1 3 5 2 18

New Hampshire 42 2 2 2 3 51

New Jersey 90 14 2 1 7 114

New Mexico 68 11 5 3 7 94

New York 158 7 7 4 20 196

North Carolina 41 5 2 7 10 65

North Dakota 165 2 8 1 0 176

Ohb 283 4 4 5 6 302

Oklahoma 396 29 26 32 36 519

Oregon 30 1 19 8 1 59

Penrisylvania 291 2 0 2 7 yu2

Rhode Island 13 0 0 0 1 14

South Carolina 57 3 2 0 9 71

South Dakota 124 1 2 2 4 133

Tennessee 239 ^ 8 4 9 283

Texas 1,153 132 107 265 303 1,960

Utah 31 9 12 5 3 60

VeinxxTt 24 0 1 0 0 25

Virginia 110 23 10 9 18 170

Washington 48 12 20 7 6 93

West Virginia 181 10 10 7 4 212

Wisconsin 534 11 12 5 4 566

Wyoming 62 6 19 8 11 1G6

Total 11,036 716 608 790 922 14,072

^ The pre-1973 group includes 14 banks of unknown esteblishment year.

Source: (73).

50

20- U.S. Government Printing Office 261-455/20141
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