Deregulation and structural change in the U.S. commercial banking industry

Several interesting observations emerge. First, California, New York, Pennsylvania, and Texas have actual top 100 banks that differ by three or more from their respective benchmarks. New York has 22 and Pennsylvania has three more top 100 banks than their benchmark while California has six and Texas has three fewer top 100 banks than their benchmark. Second, Alaska, Arizona, California, Connecticut, the District of Columbia, Hawaii, Idaho, Maryland, Nevada, New Jersey, New York, North Carolina, Oregon, Rhode Island, and Washington all have at least twice as many benchmark total banks as actual banks, suggesting that they are under banked. But, of course, the major part of the explanation is that these states are all statewide branching states. Similarly, Arkansas, Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oklahoma, South Dakota, West Virginia, Wisconsin, and Wyoming all have twice as many actual total banks as benchmark banks, suggesting that these states are over banked. But, once again, these states except South Dakota have unit or limited branching.31

ENTRY AND EXIT OF BANKS

As noted above, the fall in the actual number of banks hides significant events on the number of entries and exits to the industry. Exits from the industry may occur because of mergers, charter conversions, or relocations across state lines; entries may occur because of de novo entries, charter conversions, or relocations across state lines.

Our data on exits and entries compare bank identification numbers between two adjacent years and divide banks into three categories-banks in the first year and not in the second (exits), banks in the second year but not in the first (entries), and banks in both years (survivors). Focusing on the 50 states and the District of Columbia, the total number of banks fell from 14,842 in 1976 to 9,653 in 1998. That decrease of 5,389 banks was accomplished with 11,921 exits and 6,532 entries.

Table 10 reports the average number of entries, exits, and net entries (entries minus exits) by state for 1977 to 1979, 1980 to 1984, 1985 to 1989, 1990 to 1994, and 1995 to 1998. We now sort states by the average number of banks over the sample period. Several observations emerge. First, the quantity of new entries achieves its highest levels between 1980 and 1984 where new entries averaged 446 per year. A number of states average over 20 new banks per year from 1977 through 1998-California, Florida, New York, and Texas. Texas has the highest average of over 40 new banks per year followed by California of over 32 banks per year.32 If we consider the number of new entries as a fraction of the number of banks in the state, then the states with the highest fractions include Arizona, California, Delaware, Nevada, North Carolina, and Oregon. Arizona leads the list with new entries each year at 10 percent of existing banks; Nevada and Delaware follow with 9 percent and 8 percent, respectively.

The pattern for exits paints a different picture. The data suggest a regime change between 1983 and 1984. Before 1984, the number of exits averages just fewer than 260 while after 1983 it averages almost 675. For exits, several states average over 20 per year-California, Colorado, Florida, Illinois, Missouri, New York, and Texas. Texas has the highest number of exits per year at over 63 followed by Florida at over 42 per year. Relative to the number of banks in a state, Arizona, Colorado, Massachusetts, New Hampshire, New Jersey, and Rhode Island have the highest percentage of exits per year. Florida and Rhode Island lead the pack with 9 percent exits per year followed by New Hampshire with 8 percent per year.