ABSTRACTIn recent years, many of the restrictions on banking activities adopted following the banking collapse of the 1930s have been eroded by improvements in technology and high interest rates, which led to increasing direct competition from unregulated institutions. Beginning in the 1970s, the regulatory agencies, state legislatures, and the Congress have moved to liberalize these restrictions. Based on research on economies of scale and scope, the experience of the conglomerate merger movement of the 1950s and 1960s, the observed effects of changes in state laws governing branches and holding companies, foreign experience, and experience in other industries that underwent deregulation, banking deregulation is likely to lead to reductions in the number of banks and increases in their efficiency, geographic scope, and product diversification. Such an outcome is consistent with the survival of a large number and variety of financial institutions and need not endanger the safety of the banking system.