Independent Banker - December 2017 - 9

Fine Points
By Camden R. Fine, president and CEO of ICBA
The 'overbanked' fallacy
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. Representatives 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 excessive 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
assistance 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 megabank model-designed to
Our banking
system is
plagued not
by oversupply
but by
consolidation.
squeeze every last cent from customers-is what
gave us the Wells Fargo phony-accounts scandal.
Of course, regulatory burden contributes
greatly to the problem. A recent survey from the
Federal Reserve and Conference of State Bank
Supervisors found that community bank compliance
costs have increased by nearly $1 billion
in the past two years to roughly $5.4 billion, or
24 percent of community bank net income. Of
the respondents who said they considered an
acquisition offer in the past year, virtually all
(96.7 percent) said regulatory costs were a " very
important, " " important " or " moderately important "
reason. Further, the Federal Reserve Bank
of Richmond has found that regulatory costs
contribute to the dearth of de novo applications.
Because of the role US financial regulation
plays in industry consolidation, this is a public
policy issue that must be dealt with before
it's too late. ICBA has long advocated a more
tailored approach to bank regulation, with rules
tiered to the size and risk profile of regulated
institutions. Now is the time for policymakers to
finally heed our calls.
Community banking has contributed greatly
to the nation's growth and development over
the past century and a half. It is synonymous
with the American traditions of independence,
self-reliance and entrepreneurship. The
declining number of US banks is not a trend
to be encouraged but a problem to be fixed to
maintain a diverse and decentralized system that
ensures continued access to financial services
for all Americans. Not all banks are the same,
and the community banking industry's role in
our industry should not be diminished.
Follow Camden R. Fine on Twitter,
@Cam_Fine
independentbanker.org
ICBA Independent Banker 9
http://www.independentbanker.org
Independent Banker - December 2017

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