Government Policy and Banking Market Structure in the 1920s

This article investigates interstate differences in banking market structure during the 1920s. It finds that the number of banks per capita and the ratio of state-chartered to federally chartered banks were highest in states with deposit insurance systems, low minimum capital requirements, and branching restrictions. In the 1920s banking consolidation was greatest where falling incomes caused high failure rates, in states with deposit insurance, and where branching increased. After 1920, the high failure rate of insured state banks caused the ratio of state–chartered to federally chartered banks to decline relatively more in states with insurance systems.