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Wednesday, February 26, 2014

The Decline of the Small Bank

From the National Review (h/t Instapundit), an analysis of the decline of small banks and the rise of large banks. The article notes:
Since the financial crisis, US banking assets and deposits have continued to consolidate in a handful of large banks. As the charts show, the five largest banks by assets now hold 44.0 percent of US banking assets and 40.1 percent of domestic deposits—up from 23.5 percent and 19.5 percent, respectively, in early 2000. Correspondingly, small banks’ share of domestic deposits has fallen from 40.4 percent to 23.0 percent since early 2000, and their share of US banking assets has declined from 35.8 to 19.5 percent.
Under this rubric, "small banks" are "institutions with $10 billion or less in assets." The article notes that much of consolidation is due not to market pressures, but to banking regulations--it specifically focuses on the Dodd-Frank Act passed on 2010. The problem for small banks is the increase in overhead to comply with the Act, including adding additional "non-value added" employees. This reduces revenues for the banks, and makes it easier for the larger banks to buy out the smaller banks.

But, as with most business regulation, that is the purpose--to keep the big guys safe from small competitors.

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