Tuesday, December 4, 2018

Update - No New Banks Is Not Good News?

I previously looked at the drastic decline in the number of new banks established, according to the FDIC, starting in around 2010. For example, 2012, 2013 and 2014 each had 0 new commercial banks. 2011, 2012,2014 and 2015 each had 0 new savings institutions. One need not be a banking expert to formulate reasons for this trend, new banks failed more often during the financial crisis, economic uncertainty made new businesses a hard sell to investors, some banks profits were squeezed (as with many businesses) and there was increased and/or unpredictable new regulation.

However, the trend appears to be changing, with 10 new commercial banks reporting to the FDIC in 2017 and YTD 2018. This is the greatest number in the same period since 2010, when there were 9 new commercial banks reporting to the FDIC.

Some see this as a hopeful sign and point to the FDIC's apparent willingness to encourage the establishment of new banks.

The reasons why new banks are not established are likely complex, as are the reasons why banks fail, and may not be subject to generalized conclusions. However, to the extent new banks provide financing for economic expansion and opportunities for investors, more of them can't be a bad thing.

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