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Banking Landscapes: the micro and macro of the situation


The continuing trend of consolidation and what it means for the future of banking

In our short publishing history on this blog, we’ve looked at a lot of different banking institutions in a lot of unique regions. It might be easier to look at banking trends in another country simply because the United States has such a wide range of banking needs and trends in each town, city, or state. There are several factors which influence the placement of banking institutions across this nation, including current banking policy, demographics of the people of a region, or the general growth of a city’s economy.

However, the current trend of banking in the U.S. is one of consolidation, meaning that larger institutions buy the assets and branches of smaller institutions. This is particularly relevant in larger cities, particularly in cities which may have a greater appeal to mega banks. For example, in Charlotte, NC, which is the headquarters of one of the biggest banks, Bank of America, there are fewer banks than you find in most cities and even fewer Better Banking Options. Like many industries, as the strongest of the competition gets stronger and accumulates more assets, the smaller institutions find it harder to compete. Some cities see more evidence of this than others, which may be because specific populations have special banking needs which mega banks are unable or unwilling to fulfill. For example, in Philadelphia, Asian Bank has been able to continue operating in Chinatown because they successfully provide services to immigrants or those who don’t speak English, and, perhaps because mega banks don’t want to provide those services.

Some banks and credit unions may be able to survive because of the isolated nature of their small towns’ histories. Recently, we’ve looked at several small-town banks which have been operating for the better part of a century simply because no mega banks have been interested in the region they work in. Community State Bank, a small bank in a town of just a thousand people in Northern Indiana, has been a vital part of the economy and community there since opening 85 years ago. However, if a bank like this, with only $61 million in assets, was forced to compete with other, much larger, banking institutions, they probably would have ended up being bought by one of these larger institutions. When this does happen, a much smaller portion of the money invested in the larger institution goes back into housing and business in the small town, which previously had a lending institution investing intensively in that community.

Consolidation isn’t necessarily a bad thing: Hope Credit Union is one fantastic banking institution which has absorbed many smaller institutions over the past decade or so, but most of these small banks and credit unions were struggling with issues unable to be solved without the resources and capital provided by Hope. They enabled these smaller community banks to keep operating without shutting down completely or selling their assets to a larger bank with a weaker community lending portfolio.

The consolidation trend has coincided with a boom in the number of branches. There were 82,613 bank branches in the U.S. at the end of 2014, nearly double the 1984 total of 42,717, even with the growth in online banking. This doesn’t discount the fact that certain communities and regions are still disproportionally underbanked or unbanked.

So, what does the future of banking look like in this country? Unfortunately, because of the continuing trend of consolidation and the many online and mobile banking options provided by larger banks, smaller community banks will almost certainly continue being absorbed into larger institutions. We can only hope that when this happens, those larger banks are also committed to invest in the communities they are moving into.

The most important takeaway from this is that each local economy, big or small, has different lending and banking needs, and that different banking institutions must continue to exist for these needs to be fulfilled. Even as the banking industry consolidates, policy must be in place to ensure that at-risk populations are having their banking needs met, which is why the protection of the CRA is so vital. Otherwise, the statistics show that mega banks will disproportionally favor the rich and ignore minority and low-income communities.

It's up to us as banking customers to choose a Better Banking Option—the institutions that continue to serve local communities and strengthen local economies.

#consolidation

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