This study investigates the effects of banking deregulation on county-level economic growth in the U.S. during the 1970–2000 period. Our main contribution to the literature is that we analyze both the direct and external effects of banking deregulation on local economic growth. For the regions South, West and Northeast, we find significantly positive long-run direct effects of intrastate branching deregulation on the expected growth rates of counties in the deregulated state itself, up to several percentage points. We also establish significantly positive long-run external effects on the expected growth rates of counties adjacent to the deregulated state, up to several tenths of percentage points. We do not find such robust effects for interstate banking deregulation.