The number of banks in the United States has continued to decline, and has now hit its lowest level since the government began tracking data in 1934. At the peak there were more than 18,000 banks, but today that number has dwindled back down to just over 6,800 banks, with more than 10,000 leaving the industry between 1984 and 2011 due to mergers, consolidations and failures. The FDIC indicates that 17% or roughly 1,700 of the banks left the industry due to failure, but those numbers do not take into the account the many others forced to merge or sell due to dwindling capital levels and the prospect of failure if they did not merge or sell.
Although there is no doubt there were too many banks when the level was at 18,000, with a growing population and the large geography of the United States, there is concern that there could be too few banks to properly serve all consumers and small business owners, especially those in rural communities where community banks have historically been the only source of financing for many local small businesses. And it is unlikely the number of banks will remain stabilized at about 6,800. With many community banks still struggling from a capital and regulatory perspective, and many others finding they are no longer very profitable if profitable at all due to the cost of managing increasing levels of regulation, many believe additional bank closures, mergers, and forced sales will continue to shrink the number of banks in the United States for the next several years to come. And it is unlikely new bank start-ups will fill any void in demand since only one new bank has been provided a charter by the FDIC since 2010, and there is only one other application in process for another new bank at this time.
The number of large banks has continued to increase, and many mid-sized and large banks have continued to move up market from a management and lending perspective. What that means is that they are focusing on larger business clients and consumer wealth management clients, and both the business and consumer products they provide to everyday and small business are more streamlined and model based, and often do not fit the needs of most consumers and businesses. This is making it even harder for small business owners to find the financing and other support they need to grow and succeed. A problem that will only be compounded if more of the community banks fail, and larger banks without much of a market presence or focus on a local community take over.
There are many pushing for the government to lessen restrictions on community banks and provide more flexibility, making it easier for them to remain profitable and succeed. However, until real changes are made to the regulations effecting community banks, additional community bank failures are likely to occur, and any further decline in the number of banks and specifically community banks could be very damaging for United State’s small businesses, and hence the economy on a long-term basis.