An analysis of bank chartering requirements and their effect on bank competition in Illinois

Includes bibliographical references.The purpose of this study is to acquaint the reader with the requirements needed to obtain a state or national bank charter in the State of Illinois and the part these requirements play in determining the intensity of competition within the State. Research included an interview with one of the bank review examiners to ascertain not only the legal requirements demanded of the public but also those things that the review examiner looks for when examining a market area to find the potential it offers to a proposed new bank. Findings of that interview suggest that the requirements specified in the 1963 Illinois Banking Act are far outdated. An entirely new format for investigation is now used and the requirements appear far too low by present standards. The banking structure of the State was analyzed by determining the number of banks and their size. Supplemental information such as the number of banking substitutes, the growth of new banks, population per bank in selected cities of Illinois, and the growth of deposits of Chicago banks compared to banks in other large cities was discussed. All of these factors add to the picture of the Illinois banking structure. The structure, in turn, is very important in determining the competition among Illinois banks. A comparison of statistics between Illinois and other states suggests that Illinois has a shortage of commercial banking offices. The study size shows that the supervisory authorities in following the requirements to grant a bank charter in Illinois do indeed determine the intensity of competition between banks. The conclusions of the study suggest a possible remedy for the shortage of banks in Illinois while maintaining safety of deposits. It appears that the only reliable methods of measuring competition are the number of bank failures attributable to competition and the profit picture of existing banks in the market area. The assumption is made that bank failures are harmful to society; thus, the number of failures must be kept at an absolute minimum. The State can therefore increase the number of commercial banks until the threat of increased bank failures looms as a reality. To increase the number of banks while still maintaining safety of deposits requires putting the requirements to obtain a new bank charter on some sort of sliding scale connected to the profits of existing banks in a market area. When the profit condition of banks is high but the banks are doing a sub-marginal job of meeting the Public's demands, the requirements to start a new bank would be lowered. When the profit picture of banks is considered poor and the threat of a bank failure is evident, the requirements would be raised. The requirements to obtain a charter do affect the competition between banks in Illinois. Any measure which would affect these requirements must not have an adverse effect upon the safety of public deposits.M.S. (Master of Science