Abstract: The Bank of America and the Transformation of Banking in California

Mark Carlson and Kris James Mitchener


This paper examines the impact of branch banking on competition and the stability of banking systems. Since California was a pioneer in the development of intrastate branching, we use its experience during the 1920s and 1930s to examine the effects of the expansion of large-scale branch banking networks. As this effort was led by the Bank of America, our paper provides a special emphasis on this institution. Using a new database of individual bank balance sheets and branch establishment, we examine the characteristics that made a bank a more likely target of a takeover, how competing banks responded to the presence of branch banks, and how branching networks affected the probability of survival during the Great Depression. We find that well-capitalized banks displaying characteristics of more profitable institutions were the most likely merger targets. Banks that had to compete with branches changed their operations in ways consistent with efforts to increase efficiency and profitability. We then find that these banks were more likely to survive the Depression than banks that did not face such competition. Thus, our paper provides evidence that branch banking increased the stability of the banking system by increasing competition and forcing banks to become more efficient.