Bank Expansion in Ohio
Both economic theory and available empirical evidence suggest that the relaxation of geographic restraints on bank expansion, particularly de novo expansion, promotes actual and potential competition in banking markets. Greater competition, in turn, benefits consumers by increased and improved financial services. If geographic barriers to entry do not exist, each banking organization operating in a given market is pressured to provide the mix of services desired by consumers at prices reflecting the lowest possible costs of production. Failure to do so would result in revenue ceclines and ultimate loss of market share. Geographically unconstrained rivals that operate within or on the fringes of a market can be expected to perceive market opportunities resulting from a competitor’s inferior performance; rivals might react by branching, either de novo or through merger/acquisition, into and/or throughout the market in an effort to attract profitable business. Just the threat of entry by legally uninhibited rivals and knowledge of the attendant consequences should spur the performance of banks operating in any given market.
The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit clevelandfed.org for updates.