Is the US Overbanked?
July 13, 2018
“The US has too many banks,” stated Kelly King, Chairman and Chief Executive of BB&T. According to him, too much competition results in a lower return on investment (ROI), which is why several banks face the risk of going out of business.
Before you’d start to feel sorry for banks, take a look at the big picture, which is a bit more complicated. While it’s true that the number of banks is decreasing, it’s not because of large financial institutions facing too much competition.
No, they’re doing just fine.
The Large Are Getting Larger
In the 1970s, there were around 18,000 banks in the US. Today, that number has shrunk by two thirds to about 6,000. But banks didn’t just disappear overnight. More often than not, they were bought by other, bigger banks.
80% of the financial industry is currently controlled by 122 banks that possess over $10 billion in assets. This means that while the number of banks is diminishing, the concentration of the financial market is becoming increasingly dense.
While the number of banks is diminishing, the concentration of the financial market is becoming increasingly dense
While this certainly raises a few questions about fair competition and monopolies, there’s another, even more pressing issue that largely concerns small businesses.
Diminishing Community Banking
With the expansion of large financial institutions, community banking seems to become a dying art. Out of the roughly 6000 banks, only 5.72% are large institutions. The rest are community banks.
But since the 1970s, more than 50% of community banks have gone out of business.
This is rather unfortunate for small businesses, since community banks are their natural partners. Being part of the same community, they tend to share similar objectives and life-cycles. More often than not, business owners and bankers even know each other from school.
Large financial institutions usually have a hard time understanding the scales small business operate on. They tend to regard small businesses as “risky”, which means that they’re less likely to provide sufficient loans.
Large financial institutions tend to regard small businesses as “risky”, which means that they’re less likely to provide sufficient loans.
Although that trend seems to be changing, small businesses still have better odds if they apply to alternative lending institutions for a loan.Companies like BlueVine offer small business loans in a value of up to $250k.
Quality Above Quantity
To answer the burning question: no, we don’t think the US is overbanked. But we definitely think customers, especially small businesses deserve more from the financial industry.
Take global payments, for instance. Sending an international wire transfer through a bank takes a lot of time, is unsafe, and costs a lot of money for small businesses.
Instead, try Veem.
Veem allows you to send and receive global payments with just a click. It’s faster and safer than your bank, and it saves your business a lot of money as well, since Veem charges $0 wire fees and offers competitive foreign exchange rates.
Sign up for a free Veem account and enjoy first-class payment services.