Managerial Decisions for Firms with Market Power Help?

If the large interstate banks start loaning money to your customers (those in your geographic area) at a lower rate of interest than you can afford to do or you are not willing to take the risk a large bank could easily absorb if the loan went bad. The smaller bank can normally compete as to rates but because of it's smaller size is more vulnerable to their ability to absorb a bad loan. This is why it often happens when a small regional bank goes bad it is taken over by a larger bank with more ets or a better balance sheet.