Deregulation, the Internet, and the Competitive Viability of Large Banks and Community Banks

Abstract

Deregulation and technological change are transforming U.S. commercial banking from an industry dominated by thousands of small, locally focused banks into an industry where a handful of large banks could potentially span the nation and control the majority of its bank deposits. This paper examines the comparative strengths and weaknesses of large and small banks in this new environment, and outlines the strategic opportunities and threats that new technology especially the Internet pose for U.S. banks. Although the number of small banks will almost certainly continue to decline, we conclude that well-run small banks should be able to adjust their business strategies to the new environment and profitably co-exist with large, globally focussed banks.