Is the Geography of Banking Services Converging toward Markets? The Case of Illinois

In this paper, we explore whether the geography of bank services has been converging toward the market since banking geographic deregulation. We use Illinois as a study area and examine changes in various market segments such as metro and non-metro markets, and regional markets. We adopt the Spatial Concentration Index (SCI) and the related supply and demand SCI deviations to measure changing supply-demand mismatch. We find that supply distribution was more dispersed than demand distribution in most market segments in the early 1980s when geographic restrictions on banking were in place. However, discrepancies in supply-demand distribution declined during the geographic deregulation and banking consolidations of the last two decades, especially in the 1990s. In the Chicago market, bank offices were more dispersed, but deposit distribution more concentrated, than demand distribution before deregulation. Since deregulation, both office and deposit distributions have become more aligned with the demand distribution. In Northern Illinois metro markets, and to a certain extent in the Central and Southern Illinois non-metro markets, supply-demand distribution discrepancies have declined only in the period of 1992 to 2002. In Central Illinois metro markets, while bank office distribution has become more in line with that of demand, deposit distribution has become more dispersed than demand distribution during the 1990s. We also find a reduction of the average bank office size, particularly in larger markets, which provides further support to the hypothesis of bank market convergence.