May 11, 2026 11:15AM # Can Deregulation of Branch Banking Improve Capital Allocation? Evidence from the Great Depression By [Jeffrey Miron](https://www.cato.org/people/jeffrey-miron) --- SHARE Listen to this article Generated with [ ElevenLabs](https://elevenlabs.io/) AI technology. Loading the [Elevenlabs Text to Speech](https://elevenlabs.io/text-to-speech) AudioNative Player... The Great Depression led to dramatic increases in [bank regulation](https://www.federalreservehistory.org/essays/glass-steagall-act). [One study](https://www.cato.org/research-briefs-economic-policy/branching-out-capital-mobility-long-run-growth?au_hash=fuXGGtbRQEg02pu8tdqW2O_5578vKwSXwmo0eOeVgYc) looks at an instance of bank *deregulation* during this period: state-level sanctioning of > bank branching, which allowed banks to operate multiple offices within a state. … \[S\]tates with extensive branching in 1940 … experienced long-run gains in manufacturing productivity. The study also > assessed the role of capital reallocation using bank and branch-level balance sheet data from 1937. … Branch offices located in capital-constrained counties … were twice as likely to receive funding on net from other banks and branches than comparable stand-alone banks in the same areas. In addition, the new > branch networks improved capital allocation by directing funds to where they were most scarce, a function that stand-alone banks could not perform. All in all, these > findings provide evidence that the institutional structure of branching—rather than simply expanded banking access—improved capital allocation and integrated financial markets to fuel manufacturing productivity growth, especially in underserved areas. ##### Related Tags [Banking and Finance](https://www.cato.org/banking-finance), [Regulation](https://www.cato.org/regulatory-studies) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).