Nationwide branching and its impact on market structure, quality and bank performance

Based on a sample for 1993-1999, this paper examines the effects of nationwide branching, following the Riegle-Neal Act, on various aspects of banking markets and bank service and performance. While concentration at the regional level has increased dramatically, deregulation has left almost intact the market structure of urban markets, which have between two to three dominant firms--controlling over half of a market's deposits--in 1999 just as they did in 1993. A significant portion of the observed increase in bank quality can be traced to the implementation of nationwide branching. By allowing banks to open branches in any state, the new regime has permitted consumers to enjoy greater networks, free of fees, throughout large geographic regions. Consistent with an increase in service quality, costs and service fees increase. Credit risk increases as greater geographic diversification might provide a hedge against greater risk-return choices. Coherent with these findings and an increase in lending competition and profit efficiency, spreads fall and profits are unaffected.