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Trends in Bank Closings

We regularly talk to bank executives from around the world.  The number of US Banks that are insured by the FDIC has decreased in recent years, down from over 12,300 in 1990 to just 6,656 insured institutions as of the second quarter of 2014.

These declines can be explained by a number of factors, including mergers and failed banks. There are identifiable waves and trends over the past decade, too.

Early 1990s:

During the early 1990s, the number of mergers outweighed the relatively high number of failed financial institutions at this time.  Between 1990 and 1993, for example, there were 1,758 mergers in that time.  In that same four year span, failed banks came out at only a count of 878.

The recession of the early 1990s is reflected in the decreasing number of banks that were insured by the FDIC.

Mid to Late 1990s & Early 2000s

From 1994 until 2000, the number of mergers increased, though the number of failed banks dropped significantly. In 1995, bank mergers saw an all-time high of 606 reported mergers. As with other companies, banks began to realize that joining with other banks who could offer different specializations could help their business model.

In the 1994 to 2000 span, the number of failed banks was only 48.  The economy was picking up, and with the increasing number of mergers, even banks who were struggling were supported and not considered a failure, and having to reap the benefits of FDIC insurance.

In the early 2000s, many of these trends continued, with the number of mergers remaining steady and the number of failures staying low.

2007 to Present – Failures Surge again

In 2007, after two years of no reported failures, the trend started again, with three banks failing. Over the next few years, the numbers increased and hit a secondary high in 2010, with 157 banks hitting the point of failure.  Year to date in 2014, there have been 12 failed institutions. This means that the rate of failed banking institutions is still at higher levels than in the span of years from 1995 until 2007.

The number of failed banks has decreased steadily since 2007, while the number of mergers has been relatively high in comparison.

Mergers and Acquisitions:

In the 533 failed banking institutions since the middle of October 2000;  502 were acquired verses  only 31 have not been acquired by another bank. So, while there have been waves of unrest in the financial industry, the matter comes down to the fact that very few banks have actually closed their doors to the public.

Fewer banks with more branches seems to be the on-going trend.

In our work on Commercial Loan Pricing we talk to many bank executives and seen the pain of these trends up close.  Contact us to continue the conversation.