Where are the banks?

One result of the Great Recession of 2007 is that the number of banking institutions has dwindled to its lowest level since the Great Depression. In an article on December 4, 2013, in Money.MSN.Com, it is explained that the number of federally insured banks nationwide shrank to 6891. After the summer of 2013, the number of these banks fell below 7000 for the first time since 1934, according to FDIC.

The article points out that the decline in banks from its peak of more than 18,000 has resulted from exists by banks with less than $100 million in assets. The decline ran from 1984 to 2011. More than 10,000 banks left the industry as a result of mergers consolidation alleviated concerns that the abundance of US banks lead to difficulties in oversight or a less efficient financial system.

The fall off of banks is raising alarms among boosters of community banks which represent a vast majority of US banks. These community banks are more likely to make small business loans. The actual number of physical branches in the US is also shrinking from 2009 through 06/03/13. The number of branches dropped 3.2% according to FDIC. The larger banks have used their model and if you don’t fit in their boxes, you don’t get the loan versus a local bank knowing the activity of the local business, granting the loan.

The article further points out that unlike before the financial crisis, no banks are being created to take the place of exiting banks. The first new bank since 2010 was just started in Pennsylvania.

FDIC researchers studied community banks and found (as net interest margins on loans) the difference between the interest charged on a loan and that paid on deposits declined across the banking industry in recent years. As interest rates drop, community banks suffered more than other banks. Another way banks grow by buying branches from other banks. Through mid November, 2013, there had only been 89 sales of branches down 25% from 2012. The main reason for the drop is consumers increasing reliance on mobile banking and automated teller machines. FDIC in 2009 lengthened to seven years from 3 years. The period during which the banks are overseen for higher capital requirements and highlighted scrutiny of business, plans change. FDIC Chairman Martin Greenberg said “we would expect to be seeing additional applications as the environment improves and we expect to be approving them.

Existing small banks also report higher operational costs in the post crisis era. New expenses include investments in cyper security and staffing to ensure compliance with new federal rules on mortgage lending. The trend, as long as the economy is sluggish, will be very little expansion in the banking industry.