The transformation of banking and its impact on consumers and small businesses

William R. Keeton

Economic Review, 2001, vol. 86, issue Q I, 25-53

Abstract: The banking industry has undergone profound changes during the last decade. The most obvious change has been the large number of bank mergers, which have increased both the average size of banks and the area over which they operate. Other changes may also prove dramatic but are at this point just getting under way?the growth of Internet banking and the combination of banking with other financial services, such as insurance and securities underwriting.> The implications of these changes for the profitability and safety of banks have been widely discussed, but what do they mean for local economies? Some analysts argue that the changes will benefit most communities by increasing the public?s access to financial services and making it easier for banks to continue lending during regional economic downturns. Others argue that the changes will end up hurting many communities, especially smaller ones, because the large organizations created by mergers will be uninterested in serving small customers and will siphon off funds from smaller markets to lend in big cities.> To shed light on the debate, Keeton focuses on the two groups that are most likely to be affected by the transformation of banking?consumers and small businesses. He concludes that the recent changes in banking are likely to benefit consumers and small businesses in most communities, as long as they remain free to choose between small and large banks for their banking services.

Keywords: Bank; mergers (search for similar items in EconPapers)
Date: 2001
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