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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 3, 2013 at 10:56 AM

Number of U.S. banks hits low not seen since Depression

When Heritage Financial of Olympia merged with Washington Banking, parent of Whidbey Island Bank in October, the deal was part of a much larger trend. According to an analysis of FDIC data by the Wall Street Journal, the number of banking institutions in the United States has fallen to its lowest level since at least the Great Depression.

The well-known story of the Great Recession is that the Too Big To Fail banks that did so much to cause it (and got away with it) grew larger still. Now we can see the other side of the coin derivative.

The number of banks peaked at more than 18,000 in the late 1980s. As of Sept. 30, there were 6,891.

According to the Journal, “The consolidation could help alleviate concerns that the abundance of U.S. banks leads to difficulties in oversight or a less-efficient financial system. Meanwhile, overall bank deposits and assets have grown, despite the drop in institutions.”

Unfortunately, considering that virtually all the banks that have been bought or failed held $100 million in assets or less, this logic doesn’t completely hold up.

The “efficient financial system,” at least the one pimped by certain economists and Federal Reserve chairmen, was a big culprit behind the Panic of 2008. Its big banks, not small community banks, captured regulators and got their way — until the system came close to collapse and required a massive taxpayer bailout.

Meanwhile, the medium-sized banks that played such a critical role in cities around the nation are virtually gone. They were building blocks for the TBTFs, but it is difficult to make the case now that their absence has made the system safer or sounder.

The Journal story is here (paywall).

And Don’t Miss: The four reasons why Amazon won’t be delivering by drone soon | Reuters

Today’s Econ Haiku:

Deliver by drone

Distracts from a tax case loss

Nicely played, Wilber

 

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