Wednesday, January 31, 2018

No New Banks is Not Good News?

This article by a former bank regulator (whatever that is) claims that only six new banks have been chartered since 2010 and 2,000 have closed. Lest you think this is par for the course, this FDIC chart  showing  new and failed commercial banks and savings institutions from 1990 - 2015 confirms this trend. Between 1990 and 2009, 1994 saw the fewest commercial banks established, 50, and 1999 the most, 230. By contrast, 2012, 2013 and 2014 each had 0 new commercial banks. 2011, 2012, 2014 and 2015 each had 0 new savings institutions. Perhaps not surprisingly, the former bank regulator calls out intrusive federal regulation, but to him this is not the only problem:

The ... lack of dynamism and entrepreneurial disruption is palpable. Community banks are losing critical funding and payment market share to large banks and fintech companies. Traditional banks are crowding around discrete areas of the American wallet: middle-market commercial loans, owner-occupied commercial real estate and small business lending. Mortgage and consumer lending are increasingly offered by big companies that can afford to comply with costly rules. Customer contact and loan pricing is increasingly automated and regulated. New bank founders need the flexibility to build diversified portfolios, certainty around the capital required to implement a given business plan and certainty around the timeliness of the approval process. 

It's difficult not to opine that 2009 et seq. is when the CFPB became most active in regulating lending institutions. Since lenders form such a vital role in the economy the trend of fewer banks being formed is certainly noteworthy.

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