Interstate Banking:

Benefits and Risks of Removing Regulatory Restrictions

GGD-94-26: Published: Nov 2, 1993. Publicly Released: Nov 3, 1993.

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Pursuant to a congressional request, GAO reviewed the proposed changes in interstate banking and branching laws, focusing on the: (1) impact of interstate banking on the banking industry; (2) implications of removing interstate banking and branching laws on the safety and soundness of the banking industry, the Bank Insurance Fund, and the economy; and (3) risks associated with removing interstate banking and branching laws and ways to minimize such risks.

GAO found that: (1) the relaxation of restrictive state banking laws has contributed to a substantial increase in interstate banking in the United States; (2) removing federal interstate banking and branching restrictions would further encourage the growth of larger, more geographically diversified banking companies; (3) increased interstate banking has led to substantial consolidation of the U.S. banking industry and increased concentration of assets at the national level; (4) there is no direct relationship between increased interstate banking and the concentration of assets at the national level; (5) increased interstate banking does not necessarily reduce the role of smaller banks; (6) the benefits of removing interstate banking restrictions will depend largely on how well the banks are managed; (7) the risks of remaining interstate banking restrictions can be minimized by restricting interstate expansion to well-managed and well-capitalized banks; (8) the best way to minimize the risks to the quality and availability of banking services is to ensure that markets remain competitive through vigilant antitrust enforcement and laws and regulations governing credit availability are adequately enforced; and (9) additional regulatory authority may be needed to address any unanticipated consequences resulting from increased interstate banking.

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