The financial crisis and its economic aftershocks have spawned the first serious examination of the structure of our current banking system and the public policies that have fueled consolidation over the last 30 years and untethered financial institutions from their communities.
From the 1930s through the 1970s, state and federal policies nurtured a strong network of community-based financial institutions (both banks and credit unions). Beginning in 1980 and continuing through the last three decades, Congress and federal regulators systematically dismantled these policies.
The result has been a tidal wave of mergers and an unprecedented concentration of market power. The number of community banks — those with a $1 billion in assets or less — has fallen by more than half, while the four biggest banks — Citigroup, JP Morgan Chase, Bank of America and Wells Fargo — now hold 42 percent of U.S. deposits and control nearly half of all bank assets.
This delinking of banks from their communities has opened up a vast distance between depositor, borrower and lender, and has spawned a financial system that devotes an increasing share of its resources to speculative activities over productive investments.
Today, a growing number of economists, policymakers, and citizens believe that this separation was at the root of the financial sector’s collapse and that we ought to look at the benefits of moving toward a financial system that is primarily composed of independent banks and credit unions. Although severely diminished as a result of public policies embraced over the last 30 years, our nation is still home to about 7,100 credit unions and more than 6,700 community banks.
The Institute for Local Self-Reliance launched the Community Banking Initiative to provide the empirical and conceptual underpinnings for a community-scaled financial system, which will reduce systemic risk and strengthen local economies, and to identify public policies that can revitalize such a system.