Turf War: Interstate Banking and Industry Consolidation, 1965–1998

Author

Erin Cully, The Graduate Center, City University of New YorkFollow

Date of Degree

2-2024

Document Type

Dissertation

Degree Name

Ph.D.

Program

History

Advisor

Joshua B. Freeman

Committee Members

Timothy Alborn

Thomas Kessner

Mark H. Rose

Sean H. Vanatta

Subject Categories

Political Economy | United States History

Keywords

Banking, History, Consolidation, Interstate, Financialization, Federalism

Abstract

This dissertation examines the advent of interstate banking in America during the second half of the twentieth century. To become the giants they are today, US financial institutions had to overcome, in fits and starts, the political limits on their geographical expansion across municipal, county, state, and national borders—and not always in that order. Faced with new competitors and harsh economic conditions, some bankers set their sights on expanding their markets to stay afloat. Many policymakers and regulators were responsive to this demand, hopeful that it could serve as a catalyst for economic growth. Challenging restrictions on interstate banking meant going against the long-entrenched preference for small, locally oriented financial institutions that underpinned banking regulation in the US. While scholars have attributed this change to an ideological groundswell of support for deregulation, this dissertation argues that bankers, regulators, and policymakers operated with much shorter political horizons, often in an ideological vacuum in which “common sense” strategies for restoring growth in a post-industrial setting led to unintended and transformative effects on the industry and society writ large.

Drawing on extensive archival research, four chapters comprise the dissertation. The first illuminates a legal battleground where the very definition of "bank" became a focal point, sparking a struggle over the pace of geographic expansion first within the dual banking system, then between banks and new types of financial institutions known as “nonbanks.” The second examines banks’ rediscovery in the 1970s of the 1919 Edge Act, legislation that allowed for the operation of subsidiaries across state lines if these were restricted to international banking. Out-of-state banks used the Edge Act to gain a foothold in new financial centers such as Miami, which local Floridian banks fiercely contested. The third chapter delves into the political formation of regional interstate banking markets in New England and the Southeast. Evolving as a middle-ground compromise between rigid protectionism and nationwide deregulation, these regional interstate banking arrangements paved the way for the rise of formidable regional banking entities eager to expand their markets further. The final chapter returns to the crisis of competition and profitability that continued to haunt the industry throughout the 1980s and culminated in the Savings and Loan Crisis and argues that the drastic measures taken to save banks and thrifts unintendedly uprooted the geography of banking by introducing new activities such as brokered deposits and securitization that rendered interstate banking prohibitions all but moot. The dissertation ends with a discussion of the debate that raged on in the 1990s over the uncertain future of the business of banking.

Emphasizing the decentralized nature of US banking policy and practice, the dissertation delves into multifaceted debates surrounding the industry's role in the modern economy. It reveals the political unraveling of postwar liberalism and the gradual erosion of New Deal-era regulations. The dissertation argues that the rise of big banks was not predetermined or inevitable. Rather, banking policy evolved dialectically on a political battleground shaped by the competing interests of bankers and policymakers operating without a clearly articulated vision for the industry's future.

Recommended Citation

Cully, Erin, "Turf War: Interstate Banking and Industry Consolidation, 1965–1998" (2024). CUNY Academic Works.
https://academicworks.cuny.edu/gc_etds/5668