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New Graphs Show the Failures in U.S. Banking Policy

New policies set in place in the aftermath of the 2008 financial crisis have dimished the creation of new community banks.

By: Institute for Local Self-Reliance

May 21, 2019

New Graphs Show the Failures in U.S. Banking Policy

A robust economy and democracy require a banking system that works for all of us and delivers capital to the places where it can do the most good. Today, though, we have a highly consolidated banking industry that’s starving Main Street businesses, while fueling concentration. Our new charts provide a picture along some key metrics.

Since 2009, many of the same big banks that triggered the financial crisis continue to rake in profits, shut out competition, and bolster their portfolios with fees, high interest lending, and speculation. Policies adopted in the wake of this crisis, ostensibly to reign in these banks, have instead entrenched their positions.

Perhaps the most arresting graph in our new set is one that shows how almost no new banks have launched since 2010. Prior to that, about half of the local community banks lost to mergers each year were replaced by a new startup banks. That pipeline disappeared in 2010, in part because regulators imposed much higher hurdles for new banks.

This policy has accelerated the decline of community banks. That trend matters because these small institutions punch way above their weight in areas like small business lending. As our graphs show, community banks and credit unions control only 16 percent of the industry’s assets, but they supply more than half of lending to small businesses. 

Read more from the Institute for Self-Reliance with refreshed banking data.

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