Pub. 6 2017 Issue 4

The CommunityBanker 20 T here is a conspicuous element of the banking sector that encourages what community bankers view as a dangerous trend: the consolidation of the banking industry into fewer and fewer hands. Repre- sentatives of the largest banking organizations, most recently BB&T chairman and CEO Kelly King, frequently argue that there are too many banks in the United States. Despite the many risks posed by rising industry concentration, we hear again and again that the nation is overbanked. In fact, our banking system is plagued not by oversupply but by consolidation, which has shrunk the number of US banks from more than 18,000 to fewer than 5,800 in just three decades. This exces- sive consolidation has led to too few community banks, particularly in areas where scarce capital is needed the most. This unfortunate trend culminated in the 2008 Wall Street financial crisis and the moral hazard of a handful of financial institutions deemed too big to fail. Just 0.2 percent of US banks hold more than two-thirds of industry assets, posing systemwide risks and the continued threat of taxpayer assis- tance should those massive institutions again reach the brink of failure. The trickle of de novo banks entering the market exacerbates the problem, with the number of bank applications plummeting from more than 100 per year before the crisis to just a handful since 2009. The alternative to these oversized institutions is a community banking business model that is highly capitalized, locally focused and built on customer relationships and accountability. The transaction-based The ‘Overbanked’ Fallacy By Camden R. Fine, President and CEO of ICBA F I N E P O I N T S