Diversity? Really?

In recent days there has been some buzz from various quarters about what a "diverse" banking system we have in the United States. In fact, not long ago a writer pointed out that of the 7,500 banks in this country, 6,800 have assets of $1 billion or under. To update those figures and be more precise, according to the FDIC, there were 7,357 FDIC-insured commercial banks and thrifts in this nation at year-end 2011. Of those, 6,700 had assets less than $1 billion. Seems diverse, doesn't it? But does that tell the real story? Well, with apologies to Bill Clinton, it depends on what the definition of "diverse" is.

If one defines our banking system as "diverse" by simply looking at the sheer number of banks, then the U.S. has a fairly diverse banking system. But even by that definition we are much, much less diverse than we were in 1985, when there were over 18,000 banking and thrift institutions. Today, several countries would claim banking systems more diverse than the United States.

If one defines our banking system by assets rather than by numbers of banks, then the United States is anything but diverse. In fact, we are a highly concentrated banking system, where the overwhelming total of banking assets are held in but a very few hands. To wit, the 6,700 banks with assets under $1 billion collectively hold just 10 percent of our nation's assets, even though they represent 91 percent of total FDIC institutions. And the 2,426 banks with under $100 million in assets hold just 1 percent of the nation's banking assets, even though they represent 33 percent of all chartered banks! The 107 banks that are greater than $10 billion in assets collectively hold 80 percent of the nation's banking assets, but represent only 1.4 percent of the nation's banks. Boy, that is some "diversity" isn't it? 

Sadly, these figures were nearly reversed 30 years ago, when we actually did have a truly diverse banking system in the United States. No banking system can call itself "diverse" when a handful of institutions hold $80 of every $100 and are too big to fail. I'm just sayin’.