Small Banks Seen Prospering despite Interstate Branching

By O'Hara, Terrence | American Banker, October 21, 1994 | Go to article overview

Small Banks Seen Prospering despite Interstate Branching


O'Hara, Terrence, American Banker


Foes of interstate branching argue that the number of community banks will greatly diminish once constraints to consolidation disappear. But a Washington consultant, using California as an example, says those fears are unfounded.

A study by Secura Group managing director John P. Danforth said that in the past 25 years in California, with its long-time unrestricted intrastate branching, community banks have made significant gains on their larger brethren.

And though he admits that unfettered interstate branching will greatly reduce the number banks in the nation, he argues that community banks won't disappear and will be a much more efficient group.

"There are inherent benefits to being small, flexible, and quick to move," Mr. Danforth said. "And the California experience shows that unconstrained market forces and consolidation do not put them at a disadvantage over time."

Mr. Danforth culled call report data from 1983 and 1993 for commercial banks in California and compared them with census data for the same years. He found that during the past 10 years, the number of small banks actually increased their share of the market in California. The number of small banks rose as well, though not as fast as the population, increasing the amount of customers and deposits per institution.

What emerges from Mr. Danforth's research is that for California, a state that has had unrestricted intrastate branching since 1908, the past 10 years have overall been a boon to community banking. The large banks like Wells Fargo, BankAmerica, First Interstate, and the old Crocker and Security Pacific had the most to worry about in terms of market share. …

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