BRANCH BANKING RESTRICTIONS, COMPETITION, AND COMMERCIAL BANK PROFITS: A CROSS‐SECTIONAL STUDY

Abstract

Many states still limit or prohibit commercial bank branching. In addition, the McFadden Act prevents banks from branching across state lines. It has been suggested that anti‐branching laws inhibit competition in the banking industry. This follows from the notion that bank markets are localized, and that anti‐branching laws prevent banks from penetrating local markets adjacent to their main offices. Two interesting hypotheses arise from this conjecture. First, do banks operating in unit‐banking states have a profit advantage over their counterparts in states that allow state‐wide branching? And second, is there any significant difference in profitability between banks in limited‐branching states and banks in state‐branching states? In other words, are there diminishing returns to branching deregulation? Research reported in this paper answers these questions.

Citation

DAVID DILTZ, J. (1984), "BRANCH BANKING RESTRICTIONS, COMPETITION, AND COMMERCIAL BANK PROFITS: A CROSS‐SECTIONAL STUDY", Studies in Economics and Finance, Vol. 8 No. 1, pp. 51-60. https://doi.org/10.1108/eb028642