The 2001 Survey of Commercial Banks in the Tenth Federal Reserve District: Changes and Challenges

1 The decade of the 1990s witnessed dramatic changes in the competitive situation of individual banks and in the structure of the banking industry. Legislation removed barriers for bank holding companies to own banks across state lines, allowed banks to operate across extensive areas in a single branch network, and created financial holding companies that could operate banks, securities firms, and insurance companies under a single organization. Improved computer and communications technology enabled financial institutions to more effectively manage geographically diverse operations and, through the Internet, to easily extend the geographic reach of marketing efforts. Financial innovation expanded non-deposit investment options for consumers and intensified competition for deposits. Besides competitive factors, local economic conditions present banks with varying challenges. In the Tenth District, a large number of rural counties lost population during the 1990s, and it is often younger people who migrated, taking their banking business to urban areas. In smaller communities, migration has also eroded the labor pools of many banks. Other localities may have more favorable economic environments, but banking markets in these areas are typically highly competitive, and competition has been made more vigorous with the legislative and technical changes of the 1990s. Against this backdrop, community and regional bankers face daunting questions as they plan for the first decade of the 21 st century. Will bank performance suffer against the competitive onslaught presented by bank and non-bank firms? Will their banks successfully obtain needed funds or achieve Forest Myers and Richard J. Sullivan are economists in the Division of Supervision and Risk Management of the Federal Reserve Bank of Kansas City. We thank the many bankers who took their time to complete and return their survey questionnaire, and thank Glenna Morris and Kay Lindsey for help in preparing the survey data set. The views expressed in this article are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Kansas City or the Federal Reserve System.