Banking history reflects the life of a community

Former Minneapolis Fed economist David Dahl reported on 100 years of banking in Lyon County, Minn., at a fall 1999 conference, "Business and Banking in the Countryside," sponsored by the Rural and Regional Studies Program at Southwest State University in Marshall, Minn. Although Dahl's research focused on one rural Minnesota county, his use of banking statistics to illustrate the history of a place may have universal appeal.

David S. Dahl | Regional Economist

Published October 1, 2000  | October 2000 issue

Since the settling of Lyon County, Minn., and Marshall, its principal city, farmers and merchants used bank credit to help realize their aspirations. This Minnesota community's story is incomplete without considering banks' role.

Until the late 1970s, Minnesota prohibited branch banking, so banks primarily served the community where they were located, and a strong linkage existed between banking data and a community's performance.

Banking deposits are a rough proxy for a community's wealth, and changes in deposit levels should roughly reflect changes in a community's output and income. Plus, loan-to-deposit ratios indicate the extent to which funds are employed within a community.

From late in the 19th century to the beginning of the 21st century, banks have been an integral part of Lyon County and the city of Marshall, financing farmers and merchants who initially settled the region and continuing to provide funds as the county's economy diversified.

As the county's economy changed, so have its banks. Of the 18 Lyon County banks in operation in 1916, only the State Bank of Taunton has not changed its name, closed, merged or acquired branches. Even now, banks continue to be a vital part of the county's economy and connect Lyon County and Marshall to the regional, national and international economies.

Besides being key players in the county's development, Lyon County banks have left a statistical record that embellishes the county's history. Banking deposits reveal the county's rapid growth during World War I, the devastating effect of agricultural prices' collapse in the 1920s and the Great Depression, and the county economy's resurgence after World War II. Moreover, deposits disclose that the county's ties to agriculture have weakened as the Marshall economy has grown and diversified.

See Dahl's annotated history of Lyon County banking.

For more on the history of southwest Minnesota, including information on current research and upcoming conferences, go to the Center for Rural and Regional Studies at Southwest State University.