No tears for little banks’ fears

 We've had more banks than we need for decades. As Chicago Business reported, 249 Chicago banks compete for $314 billion in local deposits, compared with 231 banks vying for $1.16 trillion in New York. That's ridiculous.

As those numbers suggest, our plethora of banks has nothing to do with local demand for banking services. We don't save or borrow more than people in the rest of the country.  This being Illinois, you won't be surprised to learn that politics helped create our small-bank surplus. Many smaller banks in Illinois owe their existence to misguided state laws that barred branch banking for most of the 20th century. Intimidated by the powerful “community bank” lobby, state legislators didn't lift the final restrictions on branching until 1993.

Branch banking restrictions insulated small-town and suburban banks against competition from big downtown Chicago banks. Barred from branching out into the suburbs, the Loop bankers were forced to venture elsewhere in search of growth.  This led to disasters like the old First National Bank of Chicago's foray into South America and Continental Illinois' oil patch fiasco….

Read more: http://www.chicagobusiness.com/article/20130130/BLOGS10/130129743/shed-no-tears-for-all-those-little-banks#ixzz2JZS3rmi2