Often I have stated that it is no coincidence that the United States of America is the most powerful economic country in history, and that we have thousands of U.S. banks providing a variety of financial services to multiple segments. No other nation has ever had a localized financial services delivery system close to what the United States offers. Our nation has small, locally owned and operated community banks, regional banks, national banks and international banks. This range has been a source of tremendous strength that differentiates us from every other country on earth. The availability of different levels and sizes of financial institutions — appropriate to the various financial needs of small businesses, regional companies, and national and international corporations — has been the foundation of our economic growth. Similarly, having a variety of institutions to serve the needs of different sizes of governmental units, not-for-profit and church organizations, and consumers has contributed mightily to our growth as communities and as individuals.
I fear that we are endangering our breadth and depth of financial service providers. In the early 1980s, there were more than 20,000 commercial banks and thrifts in the United States. Today that number has dwindled to a little less than 7,000. Shockingly, the last time we had fewer than 7,000 of these institutions was in 1891! That’s right, I did not transpose the numbers, it was 1891. If my premise above is correct, are we in danger of diminishing our powerful economy? It’s a question we could debate for decades to come. My opinion is that, yes, we very well could be endangering our economic strength. Our country is built on the concept of individual freedom and choice. To the extent we lessen choices, we begin to look more and more like every other country in the world. Will our economy survive that change? Not if you believe, as I do, that there is a direct correlation between our unique financial services system and our status as the most powerful economy ever on earth.
Why is this change occurring? While there are many answers to that question, there are some common threads. One is that rural America continues to shrink, and therefore the pool of smaller financial institutions that serves it shrinks. Second is that the overwhelming regulatory burden placed on financial institutions is crushing smaller institutions. When the Dodd-Frank Act is fully implemented, financial institutions will be responsible for complying with more than 100,000 pages of regulations. The average bank in Indiana has about 50 employees. How can an institution of that size keep up with this barrage of regulations? Third, while technology is the great equalizer, to some extent it also makes every other financial institution a competitor. Some consumers will opt for out-of-area institutions that can provide some services remotely at a lower cost, therefore harming the local financial institution and, in the long run, the local community.
As a country, we need to decide what we want our financial services industry to look like. As we ponder, we should keep in mind that we may ultimately be making choices about what our economy looks like.