By Joel S. Dunn, CAMS, CICA, Director
In August 2015, a colleague of mine wrote an article titled “Planning in a Consolidating Banking Industry.” Now that it is 2019, I took a look at the article to determine whether his predictions, as shown below, are accurate and if there is a decline in banking organizations.
“On December 31, 1999, there were 8,356 banking organizations active in the United States (see chart below). Banking organizations consist of independent banks and thrifts, one-bank holding companies and multibank holding companies. On March 31, 2015, there were 5,977 banking organizations, a decrease of 2,379 or 28.5% from (the beginning of) 2000…How many banking organizations will there be in the next five years, or even next 10 years? I have discussed this with many industry experts who predict that there will be as little as 3,000 organizations by 2025. Just looking at the recent trend, there will be fewer than 5,000 institutions before 2020.”
Number of FDIC-Insured Banking Organizations
|Report Date||Thrifts and Independent Banks||One-Bank Holding Companies||Multi-Bank Holding Companies||Total|
|December 31, 1999||3,253||4,372||731||8,356|
|December 31, 2000||3,153||4,400||696||8,249|
|December 31, 2001||3,005||4,449||652||8,106|
|December 31, 2002||2,857||4,507||604||7,968|
|December 31, 2003||2,717||4,552||576||7,846|
|December 31, 2004||2,584||4,568||555||7,707|
|December 31, 2005||2,520||4,598||524||7,642|
|December 31, 2006||2,442||4,568||518||7,528|
|December 31, 2007||2,354||4,548||509||7,411|
|December 31, 2008||2,286||4,523||476||7,285|
|December 31, 2009||2,176||4,520||427||7,123|
|December 31, 2010||2,096||4,420||400||6,916|
|December 31, 2011||1,999||4,363||359||6,721|
|December 31, 2012||1,882||4,278||342||6,502|
|December 31, 2013||1,779||4,211||312||6,302|
|December 31, 2014||1,655||4,115||284||6,054|
|March 31, 2015||1,624||4,074||279||5,977|
|December 31, 2015||1,514||3,986||267||5,767|
|December 31, 2016||1,385||3,894||242||5,521|
|December 31, 2017||1,284||3,795||226||5,305|
|September 30, 2018||1,217||3,696||218||5,131|
Using the most recent data from the FDIC, as of September 30, 2018, there are 5,131 institutions in the United States. If this trend continues, my colleague’s prediction will be on target. Here are a few reasons why this disturbing trend may continue:
Community banks will continue to see increased competition from large banks, as well as non-bank competitors. Costs will continue to increase for technology, and there is high demand for skilled IT and compliance professionals. As a result, salary and benefit costs associated with recruiting and/or maintaining such professionals will continue to rise. The threat of cybersecurity hacks and data theft remains at an all-time high, along with the negative publicity, reputational risk, and potential fines that a financial institution could incur. Board of Directors or Head Office involvement also continues to increase, causing “fatigued” Boards.
I do believe, as my colleague did, that most banks would prefer to continue operating as independent organizations which provide a personalized service that larger banks, for the most part, don’t do; but when a community bank can no longer independently support itself under the heavy weight of today’s financial and regulatory expectations, at what point will it look to merge with or sell to another organization? Does an “enhanced’ regulatory environment – or the pressure on earnings, increased compliance, and technology costs – speed up a financial institution’s decision to merge, sell, or, in the case of a foreign branch, simply close down and exit?
Is it possible that by 2025, there will be fewer than 3,000 banking organizations? I believe that with all the above factors, we will hit that number by 2022.
To learn about acxell’s Internal Audit and Risk Management Services and how we can help your institution, email WhatsYourRisk@acxellrms.com or call 877-651-1700.
Joel Dunn, CAMS, CICA
Joel Dunn has over 20 years of experience servicing both domestic and international financial institutions with their internal audit risk management needs. While he has wide-ranging audit experience across accounting, operations, lending, treasury, legal, human resources, and security, his specific expertise focuses on BSA/AML, Sarbanes-Oxley, and FDICIA compliance. He is a Certified Anti-Money Laundering Specialist (“CAMS”) and a Certified Internal Control Auditor (“CICA”).