In 1927, Congress passed the McFadden Act which made it against the law for banks to have branches in different states.
Thank god the Riegle-Neal Interstate Banker Act repealed it but it took a while. This didn’t come until 1994.
This allowed for less competition. Little banks that were inefficient survived because of this act. My book on money in banking by Frederic Miskin says:
“The simplest explanation is that the American pubic has historically been hostile to large banks. States with the most restrictive branching regulations were typically ones in which populist antibank sentiment was strongest in the nineteenth century. (These states usually had large farming populations whose relations with banks periodically became tempestuous when banks would foreclose on farmers who couldn’t pay their debts.)”
Banks avoided some of the restrictions but could you imagine a world still like that? With debit and credit cards and billions of online purchases. Even some states would only allow one branch per bank. This would be so inconvenient and you would pay ATM fees all the time. Each individual bank would have to work with Visa at creating a debit card.
Banks are buying other banks and this is a good thing. This will create more efficient banks and it will be a lot harder for banks to fail that are big. An example is if Michigan banks fund the auto industry and all of a sudden there is something hurting the auto industry, the banks will fail in Michigan because the auto industry won’t be able to pay back their loans. If Michigan banks can also lend to California orange growers and Texas oil drillers, they will be more stable.
This is another example of letting our hearts get in the way, which allows our government to make short-term deals that take away rights.