The number of U.S. banks has dropped from an all-time high of 30,456 in 1921 to 4,377 at the end of 2020, a drop of 86% — and that decline isn’t likely to end, said William R. Emmons, an assistant vice president and lead economist in the Supervision Division at the Federal Reserve Bank of St. Louis.
In his “On the Economy” blog post Thursday (Dec. 9), Emmons says few new banks are getting charters and others are merging. The decline, though, is nothing new, having started during the Great Depression in 1929. By the end of 1933, U.S. banks total 14,207, less than half of the 1921 total.
The decline for the next quarter-century or so was much slower and almost entirely because of mergers, Emmons wrote. The number of banks bounced back to reach 14,496 by 1984, but has dropped 70% since that time, with 10,000 banks vanishing in that time, although never 600 in one year.
Bank mergers have been historically high since the 1980s and bank failures and new bank entries have almost entirely dried up since 2015.
“The long-term decline in the number of commercial banks shows no signs of ending,” wrote Emmons. “Bank failures have become much less common, but the rate of new-bank chartering also has declined to insignificance. Meanwhile, bank mergers continue at a historically high rate on a percentage basis.”
There have been 173 bank mergers through Nov. 29, according to one unofficial source, representing 4% of the banks that were in place at the end of 2020. The FDIC says there have been nine new commercial banks, no bank failures and four voluntary bank liquidations this year.
In June, U.S. Federal Reserve Vice Chair for Supervision Randal K. Quarles compared the global rush to roll out central bank digital currencies (CBDCs) to the parachute pants fad of the 1980s and FOMO, or the “fear of missing out,” but that this fad could have much more serious repercussions on the economy.
Before a U.S. CBDC can move forward, the benefits should clearly outweigh any potential risks, said Quarles during the Utah Bankers Association Convention, saying leaders must be careful about getting “carried away with the novelty” of CDBC.