We review how deregulation, technological advance, and increased competitive rivalry have
affected the size and health of the U.S. community banking sector and the quality and availability of
banking products and services. We then develop a simple theoretical framework for analyzing how these
changes have affected the competitive viability of community banks. Empirical evidence presented in
this paper is consistent with the model’s prediction that regulatory and technological change has exposed
community banks to intensified competition on the one hand, but on the other hand has left well-managed
community banks with a potentially exploitable strategic position in the industry. We also offer an
analysis of how the number and distribution of community banks may change in the future.