The results of a new study on community banks that was revealed today in Baton Rouge show the number of community bank charters across the U.S. fell by 53% from 1993 to 2014—from 12,490 to 5,830—while the number of non-community banks decreased by just 17.6% over that same period.
Conducted by a team of University of New Orleans researchers and paid for by New Orleans-based Gulf Coast Bank & Trust Company, the study says the decline of U.S. community banks is fueled largely by changing regulatory and economic conditions within the banking industry over the past several decades.
“In addition, the share of community-bank-held assets in the United States is declining as well,” the study says. “The decline of the community banking industry has significant implications for the efficiency and growth of the real economy, as larger banks may not be able to serve the community banking demographic as efficiently.”
In the study, community banks were defined as those FDIC-chartered institutions with total assets of less than $1 billion in 2014. The results were released at a press conference in Baton Rouge today.
Banking consolidation has been on the rise due to changing conditions within the industry, which in turn has “shifted the landscape of financial intermediation in the U.S. away from traditional community banks towards larger banks,” the study says. Economic conditions, such as low interest rates, in recent years have “also altered the banking environment in a way that favors larger financial institutions,” it says.
“Although a trend toward consolidation is typical in most industries, larger banks are inherently unable to efficiently meet all the needs of a community banking demographic,” says University of New Orleans researcher Kabir Hassan, who led the study, in a prepared release. “By their nature, community banks are ‘relationship’ banks. They tend to be locally owned and their deposits tend to be reinvested locally as well.”
The data shows that while the community banking industry is declining in the United States at large, the regional and local community banking industries, while still declining, have been relatively less affected.
