Nationwide Branch Banking and the Presence of Large Banks in Rural Areas

G restrictions on the rights of banks to open branches and establish offices across state lines have been relaxed throughout the nation since the early 1980s. During the 1980s and early 1990s, many states relaxed controls over branching by banks located within their borders, and almost all of them permitted some form of regional interstate banking through acquisitions of banks by holding companies (Berger, et al, 1995, pp. 188-89). Federal legislation enacted in 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act, permitted bank holding companies to buy banks located throughout the nation beginning in the fall of 1995, and permitted nationwide branching as of June 1997.1 This article examines the extent to which large banking organizations have expanded their presence in rural areas during this period of relaxation in constraints on multioffice banking (acquisitions of banks by holding companies and branching by banks). The effects of these changes in banking regulations on rural areas may be different from the effects on urban areas. Large banking organizations may have bypassed rural areas in their attempts to grow rapidly by buying urban banks. There is reason to believe, however, that nationwide branch banking eventually will lead to a major presence of large banks in rural areas throughout the nation. During the early 1980s, prior to regional or national interstate banking, the presence of large banking organizations in rural areas depended on state branching restrictions (Gilbert, 1997). Large banks were the major organizations in the rural counties of the states that permitted statewide branching. In contrast, large organizations had much more limited roles in the rural areas of states that had placed more restrictions on bank branching. Large organizations had the interest and ability to be major participants in the rural banking markets of the states that had given banks the greatest freedom to expand through branching. Some people have expressed concern that a greater presence of large banks in rural areas might have adverse effects on rural communities, by reducing the supply of credit to rural residents (Neff and Ellinger, 1996; and Featherstone, 1996). For this reason, it is important to understand the extent to which large banks have increased their presence in rural areas. In evaluating the implications of these trends for rural communities, however, it also is important to consider reasons why the entry of large banking organizations may have positive effects on rural communities. The next section surveys the studies that have implications for the effects of entry by large banking organizations on rural communities. The following sections present the data on the presence of large organizations in rural areas.