Banking Deregulation as an Economic Development Policy Tool

In 1981, the state of Delaware deregulated its laws governing bank credit cards in an effort to attract credit card subsidiaries of major banks to locate within the state. This represented an interesting experiment in economic development. The goal was not to attract a particular firm or plant, but to attract a number of firms within the industry. The state economy, which had been moribund during much of the 1970s, enjoyed an economic renaissance. An analysis using an econometric model of the state economy indicates that, even without its growth as a financial center, Delaware would have enjoyed a healthy economy during the 1980s, as was true of neighboring states. However, Delaware's development as a financial center contributed significantly to the state's economic health. An increase in average annual real growth of approximately 0.6%, which is a 15% increase in the growth rate, resulted from the financial deregulation.