Interstate banking in rural markets: The evidence from the corn belt

This report studies the causes and effects of interstate expansion into the rural banking markets of the Corn Belt. A logit analysis indicates the prior characteristics attracting out-of-state organizations to specific rural banks include lower loan-to-deposit ratio, greater market share of deposits, and less initial exposure to agricultural lending. Consistent with previous research on the more traditional forms of geographic market expansion, there is as yet no evidence the out-of-state organizations are abandoning local lending or competing unfairly. We do find significant increases in the loan-to-deposit ratios after purchase, due primarily to increases in the non-agricultural loan holdings on the portfolios. The results suggest the possibility the rural affiliates are serving as warehouses for loans originated elsewhere.