Alternative Investment Solutions

Bank Consolidation and the Credit Void

Between 1992 and 2017, the number of commercial banks in the United States has decreased from 11,463 to 5,796, or approximately -49%. The decrease can be attributed to bank mergers, acquisitions and consolidations, which resulted in the fall of small banks and the growth of large and giant banks.

COMMERCIAL BANKS: 1992 VERSUS 2017

In 1992, there were over 11,000 small commercial banks that make up 97% of all commercial banks in the United States. Shares of bank assets, as well as commercial loans and leases, were almost evenly distributed among small, mid-sized and large banks. In 2017, there are fewer than 5,700 small and midsized banks remaining. They collectively hold 17% of all commercial bank assets and make up only 21% of commercial loans and leases. In contrast, there is a total of 122 large and giant banks that collectively control 82% of all commercial bank assets and are responsible for making 78% of commercial loans and leases.

OVERVIEW OF MAJOR BANK MERGERS & ACQUISITIONS 1,2

credit void

JPMorgan Chase Bank, Bank of America, Citibank, and Wells Fargo Bank are the four largest commercial banks in the United States and collectively hold about a 41% share of total bank assets in 2017.

 

Number of Commerical Banks(2)

1992

2007

2017

% Change

 SMALL BANKS

11,083

7,961

5,036

-54.6%

MID-SIZED BANKS

329

540

638

+93.9%

LARGE BANKS

48

107

94

+95.83%

GIANT BANKS

3

16

28

+833.3%

 

The underlying shift in the traditional banking sector, along with the 2007 global financial crisis, created a credit void in bank lending. Large and giant banks control access to capital and continue to maintain tightened lending standards. The decline in lending participation by these large and giant commercial banks is also occurring due, in large part, to regulations such as Dodd-Frank(3), the Volcker Rule(4), and Basel III(5).

As a result, only the largest and most credit-worthy companies have access to credit. This leaves many small, middle, and even large companies seeking alternative sources of financing to run and expand their businesses.

SHARE OF BANK ASSETS & LOANS AND LEASES(2)

credit void, bank consolidation

To learn more about bank consolidations and the credit void, please contact your financial advisor.

Definitions:
Small banks: assets of less than $1 billion; Mid-sized banks: assets between $1 billion and $9.9 billion; Large banks: assets between $10 billion
and $99.9 billion; Giant banks: assets of $100 billion or more
1. “How Banks Got Too Big to Fail.” Mother Jones, February 2010.
2. “Assets & Liabilities: Commercial Banks.” FDIC – Statistics on Depository Institutions Report, December 31, 1992, June 30, 2007, and June 30, 2017.
3. Dodd–Frank Wall Street Reform and Consumer Protection Act.
4. The Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act.
5. Third Basel Accord, Basel Committee on Banking Supervision.


Financial Advisors, for additional information:

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