I was just reading an enlightening analysis by William C. Nygren of Oakmark Funds about the banking industry adn how it has been and continue to be and will be consolidating into fewer and larger banks going forward. In fact, 40 years ago, there were 14,469 banks throughout the U.S.; today there are only 4,200. Competition is diminishing.
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Banking is an industry with large economies of scale. A rule of thumb is when two similarly sized banks merge, non-interest expenses can be reduced by 20%. Because of that, banking has been a consolidating industry. Forty years ago, there were 14,469 banks in the U.S. The total number of banks is now only about 4,200. That decline occurred despite public policy that has favored smaller banks. (Note the number of banks is unrelated to how far away your nearest branch is—branches doubled over the past 40 years to more than 80,000.) Economies of scale mean the natural path for banks is to continue consolidating. Government policy may prevent that in good times, but the economic rationale is just too strong to stop the growth of big banks. If the regulatory playing field is leveled across all banks, as has been discussed due to recent failures, we would expect the decline in the number of banks to accelerate.