Center for Economic and Business Research 2008 Conference

Deregulation and Rural Banking in Southeast Missouri

by

Michael Devaney

• Finance fosters economic development

• Finance plays a passive role in the development process

• From the nation’s beginning, people from the rural regions distrusted “eastern” financial interests. Thomas Jefferson, the first Secretary of State, was suspicious of Treasury Secretary Alexander Hamilton

• This distrust was reflected in President Andrew Jackson’s 1832 veto of the second bank of the United States

President Jackson Vetoes The Second Bank of the United States Charter

• Rural and midwestern distrust of the financial system later became an issue at the 1896 Democratic convention in Chicago where William Jennings Bryan delivered his Cross of Gold speech.

• Bryan advocated a bimetal silver/gold monetary standard.

• Populists believed that the bimetal standard would reverse the 1873 to1896 deflation and make it easier for farmers to pay off their debts to money lenders

The Famous Quote From Bryan’s Speech

• “Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”

Political Cartoon of Bryan in 1896

Some believed that if urban, money center banks were allowed to open branches in rural areas that they would upstream deposits to the larger cities rather than lending in local markets.

Beginning in the 1920s each state was allowed to establish bank branching laws. A state could be:

• A unit banking state i.e., no branching• A limited-branching state• An unlimited branching state

• Missouri was a limited-branching state

Unit and limited-branching states tended to be located in the mid-west while unlimited branching states tended to concentrate on the east and west coasts.

By the 1970s it had become apparent that because of improvements in information technology and data base management branching restrictions contributed to significant inefficiency in the banking system.

In 1994 Congress passed the Riegle-Neal Interstate Bank Branching Act that by 1997 allowed unlimited branching across all states.

• June 2006 FDIC Statistics on Banking

• There are 7,479 banks:

• 89 Banks have over $10 billion in assets that hold 67% of total bank deposits

• The remaining 7,389 banks hold 33% of bank deposits

• Commercial Banks Represent the Most Important Source of Credit for Small Business and are also Important to Consumers.

• How Has the Post-deregulation Era Impacted Bank Services in Southeast Missouri?

• The FDIC Publishes an On-Line Summary of Deposits For Metro and Rural Counties.

• http://www2.fdic.gov/sod/index.asp

• Data of interest:

• A) Percentage change in the number of banks per county• B) Percentage change in the number of bank offices (banks +

branches)• C) Percentage change in county deposits

Annual Percent Growth in the Number of Banks 1997-2007

-0.060

-0.040

-0.020

0.000

0.020

0.040

0.060

0.080

0.100

Bollin

ger

Butler

Cape

Gira

rdea

u

Carte

r

Crawfo

rdDen

t

Dunkli

n

Frank

lin

Gas

cona

de Iron

Jeffe

rson

Mad

ison

Miss

issip

pi

New M

adrid

Pemisc

ot

Perry

Reyno

lds

Ripley

Scott

Ste.G

enevie

ve

St. Fr

anco

is

Stodd

ard

Wash

ingt

on

Wayn

e

Miss

ouri

Counties

Annual Percent Growth in Bank Offices 1997-2007

0.000

0.010

0.020

0.030

0.040

0.050

0.060

Bollin

ger

Butler

Cape

Gira

rdea

u

Carte

r

Crawfo

rdDen

t

Dunkli

n

Frank

lin

Gas

cona

de Iron

Jeffe

rson

Mad

ison

Miss

issip

pi

New M

adrid

Pemisc

ot

Perry

Reyno

lds

Ripley

Scott

Ste.G

enevie

ve

St. Fr

anco

is

Stodd

ard

Wash

ingt

on

Wayn

e

Miss

ouri

Counties

Annual Percent Growth in Bank Deposits 1997-2007

0.000

0.010

0.020

0.030

0.040

0.050

0.060

0.070

0.080

Bollin

ger

Butler

Cape

Gira

rdea

u

Carte

r

Crawfo

rdDen

t

Dunkli

n

Frank

lin

Gas

cona

de Iron

Jeffe

rson

Mad

ison

Miss

issip

pi

New M

adrid

Pemisc

ot

Perry

Reyno

lds

Ripley

Scott

Ste.G

enevie

ve

St. Fr

anco

is

Stodd

ard

Wash

ingt

on

Wayn

e

Miss

ouri

Counties

Southeast Missouri Counties Sorted by Bank Deposits in 2007

•

Banking Institutions

Bank Offices Deposits

Missouri 366 2263 96447

Franklin 17 43 1698

Jefferson 18 43 1615

Cape Girardeau 14 33 1282

Scott 9 18 747

St. Francis 7 24 723

Butler 9 20 715

Stoddard 12 25 527

Dunklin 9 15 452

Perry 7 9 371

Ste. Genevieve 5 8 299

Gasconade 7 10 290

Crawford 4 8 272

Pemiscot 4 7 247

New Madrid 8 12 237

Mississippi 3 6 232

Dent 3 6 182

Madison 3 6 153

Ripley 4 6 139

Wayne 3 7 117

Iron 2 6 114

Carter 3 5 88

Bollinger 4 5 84

Reynolds 2 5 71

Factors that most likely influence growth in county bank offices and deposits are:

• A) Growth in county population• B) Growth in county personal income

• The correlation coefficient between percentage change in county personal income and county bank deposits for 1997-2007 is: +.46

• The correlation coefficient between percentage change in county population and county bank deposits for 1997-2007 is: +.19

• Estimated regressions suggest that annual growth in county population and personal income from 1997-2007 influence the growth in county bank offices and deposits.

1) Office Growth = a + b (County population growth) b=.15 t=2.94 R-square=.28

2) Deposit Growth = a + b (Personal Income Growth) b=.92 t=2.49 R-square=.22

3) Office Growth = a + b (Personal Income Growth) b=.67 t=1.85 R-square=.13

Conclusions

• Contrary to the U.S. and Missouri, the twenty-four county region has experienced a net increase of 35 new banking institutions. The net increase in banking offices from 1997-2007 was 79.

• When one considers that Carter, Dunklin, Iron, Mississippi, New Madrid, Pemiscot and Reynolds counties all had population declines from 1997-2005 one must conclude that the Southeast Missouri region has been adequately served by banks during the post regulation era.