Consumers Have Fewer Options as Bank Numbers Shrink

The U.S. banking industry is shrinking dramatically – and that means consumers have fewer options when it comes to finding an institution to do business with.

There were only 5,856 federally insured institutions operating in the U.S. as of Q1 2017, according to the FDIC. That’s down an enormous 31.3% from 8,518 in Q1 2000.

So while it may appear that we have plenty of banks to choose from with one or more on nearly every street corner, it’s not really the case. The “banks” that are popping up are just branches of the same bank, or group of banks, giving us the illusion of growth.

Here at Weiss Ratings, we analyze bank data every quarter. When you do that, you find that banks disappear for two main reasons: A bank fails and/or it gets absorbed by a merger.

Generally, a bank fails due to an inability to meet its business obligations – and it then gets shut down by a federal or state banking regulatory agency. Oftentimes another bank will take over the assets of the failed institution, including customer accounts.

A merger occurs when two existing companies unite to make one. This could be done to expand market share or to improve the financial health of either one or both of the companies involved. A lot of times the company that is being acquired gets integrated into the acquirer and starts operating under the new name. Each merger can be unique, with terms agreed upon by both parties.

Based on our research, 55 banks merged in 2017 while six have failed so far. Here is a table showing all the merged banks:

Merged Banks

Some states stood out with highest numbers of merged banks. Florida was at the top of the list with six banks. Illinois and Texas each had five, while California and Kansas each lost four banks to mergers.

Although Illinois and Texas were among those with the most banks lost to mergers, they were also the top two states with the most financial institutions in Q1 2017. Illinois had 466, while Texas had 462. Kansas was also among the most populous bank states (at #6 with 254, as you can see in the table below) that had seen four banks merge into other financial institutions.

States with Most Banks

Bottom line: Although the overall number of operating banks is still quite high, the industry is shrinking fast. Because the top banks that are already in control can gain additional market share by acquiring smaller institutions, consumer choice and competition can shrink, leading to higher costs for customers.

To find banks that we think are strong from among the industry survivors, visit our Weiss Recommended Banks by State page. Select your state and click “View” to see all “B+” or higher rated financial institutions.

Think Safety,

Remi Lukosiunas

Money and Banking Edition, By Remi Lukosiunas, Financial Analyst Remi Lukosiunas, a Financial Analyst, joined Weiss Ratings in 2014 with a financial services background in internal audit and the credit union industry. Remi conducts banking, credit union, insurance and investment research. He has also written extensively on stocks and investing using ratings as a guide. Remi is a graduate of Florida State University with a degree in multinational business.