The number of community banks has declined sharply in the last decade. A significant share of the decline is owed to the fact that virtually no new banks have been created since 2009. Between 2004 and 2008, before the financial crisis, an average of about 300 commercial banks disappeared each year, mostly as a result of mergers. But these losses were offset by the creation of 146 new banks each year on average.
After the crisis, mergers and exits have continued at high rates, but only 1 new bank has been created on average each year. Virtually no new banks were created between 2011 and 2016.
Why the sudden absence of new banks?
Some believe a low interest rate environment is to blame. Giant banks can make profits off of speculative ventures, and make much of their revenue from the fees they charge on everything from credit cards to securitizing loans. But small banks rely on traditional banking activities, including holding deposits and making loans. They earn their income from the spread between the interest they pay on savings and the interest they earn on loans. With low interest rates, startup banks have a much harder time making any money on these standard banking activities.
Still, in past eras with comparably low interest rates, banks haven’t had the same difficulty in new formation. The real culprit in the collapse of new bank formation could be a 2009 FDIC policy change that mandated new banks, called “de novos,” submit to longer supervisory periods and higher capitalization requirements. This policy, designed with the financial crisis in mind is, in effect, stifling the banking sector, not securing it.
Read more on the new bank drought here.
See more of our banking charts and data here.
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