Interstate Banking: Benefits and Risks of Removing Regulatory
Restrictions (Chapter Report, 11/02/93, GAO/GGD-94-26).

Many states have lifted restrictions on interstate expansion of bank
holding companies, sparking an increase in interstate banking. Removal
of federal interstate banking and branching restrictions could further
spur the growth of larger, more geographically widespread banking
companies.  The growth in interstate banking is concentrating assets at
the national level as bank companies continue to buy out or merge with
banks in other states. Concentration of assets at the state level,
however, is limited to mergers and acquisitions among banks in the same
state or local market.  Banks with assets of less than $1 billion have
been able to maintain their national market share despite the growth of
the largest banking companies.  Although the removal of interstate
banking and branching restrictions could benefit the safety and
soundness of the industry, the regulatory process, and many bank
customers, such a move is not without risk.  Problems can arise if banks
are poorly managed and regulated, asset concentration levels rise
significantly, or credit is tightened for bank customers who find it
hard to obtain loans elsewhere.  The risks to safety and soundness can
be minimized by restricting interstate expansion to well-run and
well-capitalized institutions and by properly implementing the early
closure and safety and soundness provisions of the FDIC Improvement Act
of 1991.  In addition, vigilant enforcement of antitrust laws and of the
laws and regulations governing credit availability is essential.
Additional regulatory authority could be needed to respond to unforeseen
consequences of increased interstate banking.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-94-26
     TITLE:  Interstate Banking: Benefits and Risks of Removing 
             Regulatory Restrictions
      DATE:  11/02/93
   SUBJECT:  Banking regulation
             Bank management
             Federal reserve banks
             Financial institutions
             Banking law
             Bank holding companies
             Regulatory agencies
             National banks
             Economic growth
             Economic policies
IDENTIFIER:  Bank Insurance Fund
             BIF
             
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