Most commercial banks that have operated in the US over the past century are gone. Compared to an all-time high of 30,456 banks in 1921, total US banks fell to 4,135 in 2022, down 86%.
After the Banking Act of 1933 created the Federal Deposit Insurance Corporation (FDIC), the number of banks remained between 13,000 and 15,000 for 50 years. It wasn't until the 1980s when the number of banks started falling year-over-year.
Over the last four decades, the number of FDIC-insured commercial banks has fallen by more than 70%.
What does the decline of US banks mean for the economy?
The drop in US commercial banks can have long-term implications for the resilience and sustainability of the financial system and the economy at large.
For one, the number of new banks established over the past decade is insufficient to outpace those that have closed, meaning the industry is expected to continue shrinking over time.
Obstacles, such as regulatory costs, make it more difficult for small banks to compete against larger institutions.
While the FDIC has stated it doesn’t want to prop up banks that have been managed poorly, it has indicated that policymakers should remain vigilant and avoid the temptation to prescribe more regulations.
Other legislation includes the Garn-St Germain Depository Institutions Act of 1982, the Competitive Equality Banking Act of 1987 (CEBA), and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).