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The Impact of the Growth of Large, Multistate Banking Organizations on Community Bank Profitability

by Gary Whalen

Abstract

Especially since the passage of the Riegle-Neal Act in 1994, community banks increasingly face large, multistate holding company (MSHC) rivals in the local markets in which they operate. These large MSHCs more often operate through interstate branches, rather than through the offices of a separate subsidiary headquartered in-state. Disagreement persists about the likely effects of this trend on community banks. If large absolute size, or an interstate branch form, confer competitive advantages, the profitability of community banks should be lower in markets where they face such rivals. On the other hand, a number of observers cite possibly offsetting advantages associated with small size, such as a greater ability to offer valued personal service. To date, virtually no empirical studies have focused on this issue.

Disclaimer

Any whole or partial reproduction of material in this paper should include the following citation: Gary Whalen " The Impact of the Growth of Large, Multistate Banking Organizations on Community Bank Profitability. , " Office of the Comptroller of the Currency, E&PA Working Paper 2001-5, December 2001.

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