A significant share of locally owned businesses are struggling to secure the financing they need to grow.  Our 2014 Independent Business Survey found that 42 percent of local businesses that needed a loan in the previous two years had been unable to obtain one.  Another survey by the National Small Business Association likewise found that 43 percent of small businesses who had sought a loan in the preceding four years were unsuccessful.  Among those who did obtain financing, the survey found, “twenty-nine percent report having their loans or lines of credit reduced in the last four years and nearly one in 10 had their loan or line of credit called in early by the bank.”

Very small businesses (under 20 employees), startups, and enterprises owned by minorities and women are having a particularly difficult time.  Even with the same business characteristics and credit profiles, businesses owned by African-Americans and Latinos are less likely to be approved for loans and face greater credit constraints, particularly at start-up, according to one recent study.

One consequence of this credit shortage is that many small businesses are not adequately capitalized and thus are more vulnerable to failing.  Moreover, a growing number of small businesses are relying on high-cost alternatives to conventional bank loans, including credit cards, to finance their growth.  In 1993, only 16 percent of business owners reported relying on credit cards for financing in a federal survey.  By 2008, that figure had jumped to 44 percent.

The difficulty small businesses are having in obtaining financing is a major concern for the economy.  Historically, about two-thirds of net new job creation has come from small business growth.  Studies show locally owned businesses contribute significantly to the economic well-being and social capital of communities.  Yet, the number of new start-up businesses has fallen by one-fifth over the last 30 years (adjusted for population change), as has the overall number and market share of small local firms.  Inadequate access to loans and financing is one of the factors driving this trend.   

Sources of Small Business Financing

Unlike large corporations, which have access to the equity and bond markets for financing, small businesses depend primarily on credit.  About three-quarters of small business credit comes from traditional financial institutions (banks and credit unions).  The rest comes primarily from finance companies and vendors. 

At the beginning of 2014, banks and credit unions had about $630 billion in small business loans — commonly defined as business loans under $1 million — on their books, according to FDIC.  “Micro” business loans — those under $100,000 — account for a little less than one-quarter of this, or about $150 billion. (One caveat about this data: Because of the way the FDIC publishes its data, this figure includes not only installment loans, but credit provided through small business credit cards.)

Banks provide the lion’s share of small business credit, about 93 percent. But there is significant variation in small business lending based on bank size.  Small and mid-sized banks hold only 21 percent of bank assets, but account for 54 percent of all the credit provided to small businesses.  As bank size increases, their support of small businesses declines, with the biggest banks devoting very little of their assets to small business loans.  The top 4 banks (Bank of America, Wells, Citi, and Chase) control 43 percent of all banking assets, but provide only 16 percent of small business loans. (See our graph.)

Credit unions account for only a small share of small business lending, but they have expanded their role significantly over the last decade.  Credit unions had $44 billion in small business loans on their books in 2013, accounting for 7 percent of the total small business loan volume by financial institutions.  That’s up from $13.5 billion in 2004.  Although small business lending at credit unions is growing, only a minority of credit unions participate in this market.   About two-thirds of credit unions do not make any small business loans.

Crowd-funding has garnered a lot of attention in recent years as a potential solution to the small business credit crunch.  However, it’s worth noting that crowd-funding remains a very modest sliver of small business financing.  While crowd-funding will undoubtedly grow in the coming years, at present, it equals only about one-fifth of 1 percent of the small business loans made by traditional financial institutions.  Crowd-funding and other alternative financing vehicles may be valuable innovations, but they do not obviate the need to address the structural problems in our banking system that are impeding local business development.

Shrinking Credit Availability for Small Businesses

Since 2000, the overall volume of business lending per capita at banks has grown by 26 percent (adjusted for inflation).  But this expansion has entirely benefited large businesses.  Small business loan volume at banks is down 14 percent and micro business loan volume is down 33 percent.  While credit flows to larger businesses have returned to their pre-recession highs, small business lending continues to decline and is well below its pre-recession level.  Growth in lending by credit unions has only partially closed this gap.

There are multiple factors behind this decline in small business lending, some set in motion by the financial crisis and some that reflect deeper structural problems in the financial system.

Following the financial collapse, demand for small business loans, not surprisingly, declined. At the same time, lending standards tightened dramatically, so those businesses that did see an opportunity to grow during the recession had a harder time gaining approval for a loan.  According to the Office of the Comptroller of the Currency’s Survey of Credit Underwriting Practices, banks tightened business lending standards in 2008, 2009, and 2010.  In 2011 and 2012, lending standards for big businesses were loosened, but lending standards for small businesses continued to tighten, despite the beginnings of the recovery.  These tightened standards were driven in part by increased scrutiny by regulators.  In the aftermath of the financial crisis, regulators began looking at small business loans more critically and demanding that banks raise the bar.  Many small businesses also became less credit-worthy as their cash flows declined and their real estate collateral lost value.

All of these recession-related factors, however, do not address the longer-running decline in small business lending.  Fifteen years ago, small business lending accounted for half of bank lending to businesses.  Today, that figure is down to 29 percent. The main culprit is bank consolidation.  Small business lending is the bread-and-butter of local community banks.  As community banks disappear — their numbers have shrunk by nearly one-third over the last 15 years and their share of bank assets has been cut in half — there are fewer lenders who focus on small business lending and fewer resources devoted to it.

It’s not simply that big banks have more lucrative ways to deploy their assets.  Part of the problem is that their scale inhibits their ability to succeed in the small business market. While other types of loans, such as mortgages and car loans, are highly automated, relying on credit scores and computer models, successfully making small business loans depends on having access to “soft” information about the borrower and the local market.  While small banks, with their deep community roots, have this in spades, big banks are generally flying blind when it comes to making a nuanced assessment of the risk that a particular local business in a particular local market will fail. As a result, compared to local community banks, big banks have a higher default rate on the small business loans they do make (see this graph) and a lower return on their portfolios, and they devote far less of their resources to this market.

More than thirty years of federal and state banking policy has fostered mergers and consolidation in the industry on the grounds that bigger banks are more efficient, more effective, and, ultimately, better for the economy.  But banking consolidation has in fact constricted the flow of credit to the very businesses that nourish the economy and create new jobs.

SBA Loan Guarantees Shifting to Larger Businesses

One small but important part of the small business credit market are loans guaranteed by U.S. Small Business Administration (SBA).  The goal of federal SBA loan guarantees is to enable banks and other qualified lenders to make loans to small businesses that fall just shy of meeting conventional lending criteria, thus expanding the number of small businesses that are able to obtain financing.  These guarantees cost taxpayers relatively little as the program costs, including defaults, are covered by fees charged to borrowers.

The SBA’s flagship loan programs is the 7(a) program, which guarantees up to 85 percent of loans under $150,000 and up to 75 percent of loans greater than $150,000 made to new and expanding small businesses.  The SBA’s maximum standard loan under the 7(a) program is $5 million, raised from $2 million in 2010.  The SBA’s other major loan program is 504 program, which provides loans for commercial real estate development for small businesses.  Under these two programs, the SBA approved loans valued at $23 billion in 2013, amounting to 3.7 percent of small business lending.  (The 7(a) program accounts for almost 80 percent of this.)

Although the SBA’s loan guarantees account for a small share of overall lending, they play a disproportionate role in credit access for some types of small businesses.  According to a 2008 analysis by the Urban Institute, compared to conventional small business loans, a significantly larger share of SBA-guaranteed loans go to startups, very small businesses, women-owned businesses, and minority-owned businesses.

SBA loans also provide significantly longer terms, which improve cash flow and thus can make the difference between success and failure.  More than 80 percent of 7(a) loans have maturities greater than 5 years, and 10 percent have maturities greater than 20 years.  This compares to conventional small business loans, almost half of which have maturities of less than a year and fewer than one in five have terms of five years or more.

Given the unique and important role of SBA loans, recent trends are alarming.  Over the last few years, the SBA has dramatically reduced its support for smaller businesses and shifted more of its loan guarantees to larger small businesses.  (The SBA’s definition of a “small” business varies by sector, but can be quite large.  Retailers in certain categories, for example, can have up to $21 million in annual sales and still be counted as small businesses.) The number of 7(a) loans under $150,000 has declined precipitously.  In the mid 2000s, the SBA guaranteed about 80,000 of these loans each year, and their total value accounted for about 25 percent of the loans made under the program.  By 2013, that had dropped to 24,000 loans comprising just 8 percent of total 7(a) loan volume.  Meanwhile, the average loan size in the program doubled, from $180,000 in 2005 to $362,000 in 2013.

What has caused this dramatic shift is not entirely clear.  The SBA claims it has tried to structure its programs to benefit the smallest borrowers.  Last October, it waived fees and reduced paperwork on loans under $150,000.  But critics point to recent policy changes, including lifting the 7(a) loan cap from $2 million to $5 million in 2010. The move, which large banks advocated, has helped drive the average loan size up and the number of loans down.

Policy Solutions

1. Reduce Concentration in the Banking Industry

Rather than allowing a handful of big banks to continue to increase their market share, which would result in even less credit for small businesses and other productive uses, federal and state lawmakers should adopt policies to downsize the biggest banks.  Approaches could include resurrecting deposit market share caps, forcing a full separation of investment and commercial banking, and imposing transaction taxes on financial speculation.

2. Expand Community Banks

Policymakers should also enact policies to strengthen and expand community banks, which currently provide more than half of small business lending.  At the state level, the Bank of North Dakota provides an excellent model of how a publicly owned wholesale bank can significantly boost the numbers and market share of small private banks, and, in turn, expand lending to small businesses. At the federal level, regulators should address the disproportionate toll that regulations adopted in the wake of the financial crisis are taking on small banks and look to increase new bank charter approvals, which have plummeted in recent years.

3. Allow Credit Unions to Make More Small Business Loans

Current regulations limit business loans to no more than 12.5 percent of a credit union’s assets.  Although some have called for lifting this cap, ILSR favors another proposal, which would exempt loans to businesses with fewer than 20 employees from the cap.  This would ensure that new credit union lending benefits truly small businesses, rather than simply allowing a few large national credit unions (the only ones close to hitting the current cap) to increase large business loans.

4. Reform SBA Loan Guarantee Programs

The Obama Administration should return to the previous size cap of $2 million on 7(a) loans and adopt other reforms to ensure that federal loan guarantees provide more support to very small businesses.  The SBA should also shift a share of of its loan guarantees into programs that are designed primarily or exclusively to work with small community banks.

5. Create Public Loan Funds that Target Key Needs

Although not a substitute for comprehensive restructuring of the banking system to better meet the needs of small businesses and local economies, public loan funds can address specific credit needs.  A good example of this is the Pennsylvania Fresh Food Financing Initiative, which has financed about 100 independent grocery stores in low-income, underserved communities.

Over the last few years, the U.S. Small Business Administration (SBA) has dramatically reduced its support for smaller small businesses and shifted more of its loan guarantees to larger small businesses.  (The SBA’s definition of a “small” business varies by sector, but can be quite large.  Retailers in certain categories, for example, can have up to $21 million in annual sales and still be counted as small businesses.)  Under the SBA’s flagship 7(a) loan program, the number of loans for less than $150,000 has declined precipitously.  In the mid 2000s, the SBA guaranteed about 80,000 of these loans each year, and their total value accounted for about 25 percent of the loans made under the program.  By 2013, that had dropped to 24,000 loans comprising just 8 percent of total 7(a) loan volume.  Meanwhile, the average loan size in the program doubled, from $180,000 in 2005 to $362,000 in 2013.

Since 2000, the overall volume of business lending per capita at banks has grown by 26 percent (adjusted for inflation).  But this expansion has entirely benefited large businesses.  Small business loan volume at banks is down 14 percent and micro business loan volume is down 33 percent.  While credit flows to larger businesses have returned to their pre-recession highs, small business lending continues to decline and is well below its pre-recession level.

Even as their big competitors are awash in capital, many locally owned businesses are struggling to secure the financing they need to grow.  A new ILSR analysis has found that, since 2000, bank lending to large businesses is up 36 percent, while small business loan volume has fallen 14 percent and  “micro” business loans — those under $100,000 — have plummeted 33 percent.

(The largest corporations do not even need to rely on bank loans, of course, but can finance their growth through the soaring stock and corporate bond markets.)

The problem is not a lack of demand.  In our 2014 Independent Business Survey, 42 percent of business owners that needed a loan in the previous two years reported being unable to obtain one.  Startups, businesses with fewer than 20 employees, and enterprises owned by minorities and women are having an especially difficult time.  Even with the same business characteristics and credit profiles, small businesses owned by African-Americans and Latinos are less likely to be approved for loans, according to one recent study.

One consequence of this credit shortage is that many small businesses are either not adequately capitalized or have been forced to rely on high-cost alternatives, such as credit cards.  Both scenarios make them more vulnerable to failing.

The broader consequences for our economy are significant.  Studies show locally owned businesses are a primary source of net new job creation, contribute to higher median household incomes, and increase social capital.  Yet independent businesses in many sectors are losing market share, while the number of new startups has steadily fallen over the last two decades.  Insufficient capital is a key culprit driving these trends.

To shed light on this problem and help inform policy discussions,  ILSR has published an overview of the small business lending landscape. Among the key takeaways:

• Local community banks provide a disproportionate share of small business loans.  Indeed, it is their decline, in both numbers and market share, that is largely to blame for the constriction in small business lending.  As local banks lose ground to big banks, there are fewer financial institutions focusing on small business lending and fewer resources devoted to it. The top 4 banks now control 43 percent of all banking assets, but account for only 16 percent of small business loans.  
• Credit unions account for less than 7 percent of small business loans, but have significantly expanded their lending in the last decade, growing from $14 billion in business loans to over $44 billion today.  Only about one-third of credit unions currently participate in this market, however. 
• Federal loan guarantees, provided through the U.S. Small Business Administration, have historically played an important role in expanding credit to small businesses that don’t quite meet conventional lending requirements.  In an alarming trend, however, the SBA has dramatically reduced its support for smaller businesses and shifted more of its loan guarantees to larger businesses (which still count as “small” under the agency’s expansive definitions).  Since the mid 2000s, the number of business loans under $150,000 guaranteed by the SBA each year has fallen from about 80,000 to 24,000.  Meanwhile, the SBA’s average loan size has more than doubled to $362,000.
• Crowdfunding has garnered a lot of attention recently as a potential solution to the small business credit crunch, but crowdfunding remains a tiny drop in the bucket, compared to the resources of the banking system.  At the beginning of 2014, banks and credit unions had about $630 billion in small business loans on their books.  The total volume of business financing provided through crowdfunding amounts to less than one-fifth of 1 percent of this. Although crowdfunding will undoubtedly grow and could emerge as a valuable source of capital for local enterprises, it does not obviate the need to fix the structural problems in our banking system that are impeding the development of community-scaled enterprises. 

ILSR’s overview outlines several policy approaches that focus on reducing concentration in the banking system, expanding community banks, allowing credit unions to make more loans to small businesses, and reorienting the SBA’s loan programs to once again meet the needs of truly small businesses.

When the country’s giant banks were teetering on the verge of collapse during 2008’s financial crisis, the U.S. government stepped in to bail them out. The banks were, in a phrase that has since become infamous, “Too Big To Fail.”

Would the government do it again? And does the expectation that it would step in give megabanks an unfair competitive advantage over local community banks?

Those are the questions at the heart of an eagerly awaited report released at the end of July by the Government Accountability Office, a nonpartisan federal department. In a conclusion that highlights the need for more regulatory action to reduce concentration in the banking system, the G.A.O. found that the answers to both questions are “yes.”

Six years after the bailout, the country’s biggest banks have only grown bigger. Just four megabanks, each with more than $1.5 trillion in assets, control 45 percent of the country’s banking industry, up from 37 percent in 2007, according to FDIC data. The consequences for the economy — higher consumer fees, fewer small business loans, and more risky speculative trading — are substantial.

To Senators David Vitter, a Republican from Louisiana, and Sherrod Brown, a Democrat from Ohio, these are among the signs that “Too Big To Fail” works as a kind of implicit insurance — and as such, a subsidy — for the megabanks. Because creditors and investors believe taxpayers will rescue the banks if anything goes awry, they are willing to finance big banks at much lower interest rates than they offer smaller institutions.

The Senators have introduced a bill, the “Terminating Bailouts for Taxpayer Fairness Act,” that aims to end this implicit government subsidy, and create a fairer playing field for community banks.

The Senators are also the ones who called for the G.A.O. report, in order to get a better sense of just how big the megabanks’ advantage is.

In the report, the G.A.O. looked at one particular benefit that the taxpayers’ guarantee nets the megabanks: whether they’re able to borrow money – issue debt – more cheaply than smaller financial institutions. Using 42 models, the G.A.O. found that though the benefit has tapered off in recent years, during the heart of the financial crisis, in 2008 and 2009, megabanks were able to borrow at significantly lower rates.

Since the release of the report, the financial industry has tried to spin these results in its favor, arguing that though the advantage once existed, recent reforms, like the Dodd-Frank Act of 2010, have ended it.

That reading, however, misses the full picture. It makes sense that in the current stable economy, unworried creditors view banks as on an even field, and the advantage of the government’s backing drops. But the G.A.O. study shows that the value of the government’s guarantee soars during times of crisis, when creditors are more concerned about a bank’s backup plan. In other words, when we again hit turbulent financial waters, the biggest banks will benefit – a mechanism that not only undercuts smaller institutions, but rewards the megabanks’ risk-taking.

“[The] report confirms that in times of crisis, the largest megabanks receive an advantage over Main Street financial institutions,” Sens. Brown and Vitter said in a joint statement. “Wall Street lobbyists may try to spin that the advantage has lessened. But if the Army Corps of Engineers came out with a study that said a levee system works pretty well when it’s sunny – but couldn’t be trusted in a hurricane – we would take that as evidence we need to act.”

In a Senate Banking subcommittee hearing the day after the report’s release, experts testified to the scale of the subsidies. One, taxpayer guarantee authority Edward J. Kane, argued that the G.A.O study looks at only one benefit, and that other benefits the megabanks receive from the government’s backing – for instance, paying their stockholders lower returns – mean that the value of the subsidy is even greater.

The G.A.O. report underscores the need to eliminate Too Big To Fail policies, and the “advantages and distortions they create,” as Sen. Brown said at the hearing. To do this, Sens. Brown and Vitter have proposed a series of changes in the “Terminating Bailouts for Taxpayer Fairness Act” that would sharply reduce the possibility of government bailouts for megabanks in the future.

The bill would require the largest banks — those with more than $500 billion in assets — to rely on equity capital for at least 15 percent of their funding. That would effectively put investors, rather than taxpayers, on the front lines should a megabank sustain large losses. The largest eight U.S. banks currently derive only 5 percent of their funding from shareholders, according to the FDIC.

Under the proposed bill, community banks’ capital requirements, currently about 10 percent, would remain unchanged. Mid-sized regional banks would be required to hold 8 percent equity.

In the wake of the G.A.O. report, Sens. Brown and Vitter are renewing their call for change. “Unless you think we can eliminate financial crises forever,” Sen. Brown said at the hearing, “the G.A.O.’s report is another reminder that we have more work to do.”

Photo credit: Michael Aston

Giant banks, defined as those with more than $100 billion in assets, consistently make poorer lending decisions and write-off more bad loans than do community banks, those financial institutions with under $1 billion in assets. The financial crisis heightened this trend, and in the years from 2008 to 2011, the share of bad loans made by giant banks spiked, while the share for small banks and community banks remained much more level.

The number of community banks has declined sharply in the last few years. Part of the decline is owed to the fact that virtually no new banks have been created since 2009. Between 2004 and 2008, an average of about 300 commercial banks disappeared each year, mostly as a result of mergers. But these losses were offset by the creation of 146 new banks each year on average. From 2009 to 2013, we continued to lose about the same number of banks annually, but gained only 6 new banks on average each year.

This article was co-published with Yes! Magazine.

Here’s a statistic that ought to alarm anyone interested in rebuilding local economies and redirecting the flow of capital away from Wall Street and toward more productive ends: Over the last seven years, one of every four community banks has disappeared. We have 1,971 fewer of these small, local financial institutions today than at the beginning of 2008. Some 500 failed outright, with the Federal Deposit Insurance Corporation (FDIC) stepping in to pay their depositors. Most of the rest were acquired and absorbed into bigger banks.

To illustrate this disturbing trend and highlight a few of the reasons we should treat it as a national crisis, we’ve published a trove of new graphs. These provide a startling look at the pace of change and its implications. In 1995, megabanks — giant banks with more than $100 billion in assets (in 2010 dollars) — controlled 17 percent of all banking assets. By 2005, their share had reached 41 percent. Today, it is a staggering 59 percent. Meanwhile, the share of the market held by community banks and credit unions — local institutions with less than $1 billion in assets — plummeted from 27 percent to 11 percent. You can watch this transformation unfold in our 90-second video, which shows how four massive banks — Bank of America, JP Morgan Chase, Citigroup, and Wells Fargo — have come to dominate the sector, each growing larger than all of the nation’s community banks put together.

“If we continue to go down this path, we’ll kill this concept of relationship banking,” contends Rebeca Romera Rainey, the third-generation CEO of Centinel Bank in Taos, New Mexico. Like other community banks, Centinel makes lending decisions based on its relationships with its customers and deep knowledge of the local market. It underwrites a wide range of business loans and home mortgages to local families. Many of these borrowers would likely not qualify for big-bank financing because they do not fit neatly into the standardized formulas megabanks use to evaluate their risk of default.

Yet, despite having a portfolio filled with highly localized and unconventional loans — to a home builder, for example, who constructs super energy-efficient houses entirely out of old bottles and other recycled materials — Centinel has a remarkable track record when it comes to judging risk. In 2014, the bank had to write off as a loss just 0.05 percent of the total value of its outstanding loans. In contrast, the nation’s 21 megabucks collectively charged off 0.54 percent of their lending, or ten times as much.

Even though they excel at doing exactly what we need our finance system to do, however, community banks like Centinel, which was founded by Romera Rainey’s grandfather in 1969 and is one of about 180 Latino-owned banks in the country, are disappearing rapidly. Exactly why is the subject of much debate.

Is Dodd-Frank to Blame?

Some scholars and bankers are giving the blame to the added costs of complying with the Dodd-Frank banking reform law, which created the Consumer Financial Protection Bureau and imposed new rules on banks’ behavior. In February, Michael Lux, a senior fellow at Harvard’s Kennedy School of Government and a consultant with the Boston Consulting Group, and Robert Greene, a graduate student, released a widely discussed paper arguing that the decline of community banks accelerated in “the second quarter of 2010, around the time of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s passage.” Lux and Greene contend that Dodd-Frank has piled new regulatory compliance costs on local banks “that neither pose systemic risks nor have the diversified businesses to support such costs.”

Surveys do indeed indicate that community banks are spending more on compliance as a result of Dodd-Frank, including hiring more staff, and the added burden is leading more of them to consider exiting the business by selling to a bigger bank. Yet, the correlation between Dodd-Frank and the drop in the number of community banks is not nearly as strong or clearcut as Lux and Greene suggest. Many of Dodd-Frank’s provisions took effect only in the last year and cannot explain losses in previous years.

Consumer advocates worry that Lux and Greene’s paper, which prescribes policy changes that would make it harder for regulators to impose new rules on financial institutions of any size, may help fuel a campaign by the nation’s big banks to gut Dodd-Frank. Lobbying groups like the American Bankers Association (ABA) are already using the plight of community banks to push for overturning parts of the law, including many regulations that apply only to Wall Street.

At a hearing in February, Senator Elizabeth Warren took the ABA to task for this. In an exchange with group’s chairman, R. Daniel Blanton, she noted that “the ABA’s very first request in the name of community bank regulatory relief” was the passage of a bill exempting banks of all sizes from a rule designed to prevent them from issuing mortgages that borrowers can’t afford to repay. “As you know, under the current rule, banks with under $2 billion in assets that issue fewer than 500 mortgages a year can already satisfy the… rule,” she said. “If Congress passed this bill that the American Bankers Association wants, how many community bank mortgages would become eligible [for the exemption] and how does that stack up on mortgages held by Citibank, JP Morgan, and the other giants that would become eligible under this change?”

Putting the Squeeze on Local Banks

A more comprehensive and nuanced answer to the question of why community banks are vanishing in such numbers has been put forward by Arthur E. Wilmarth, a law professor at George Washington University. In a lengthy paper, Wilmarth provides a damning look at the regulatory disadvantages faced by community banks, but without feeding the deregulation agenda of their big competitors. Dodd-Frank is flawed, Wilmarth contends, but not merely because of the added burden some of its rules impose on community banks. Its chief failing is that it did nothing to end the too-big-to-fail status of megabanks and the substantial public subsidies that come with it, or to compel a fundamental change in their business model.

Wilmarth situates the decline of community banks in the context of a series of policy changes beginning in the 1990s that untethered banks from their communities and allowed publicly insured commercial banks to engage in risky speculation. This shift in policy allowed big banks to become giant conglomerates, gobbling up market share and their smaller competitors.

The financial crisis should have been a wake-up call, Wilmarth says, but instead policymakers doubled down. “The federal government encouraged further consolidation by adopting extraordinary assistance programs to ensure the survival of the biggest institutions,” Wilmarth observes. Policymakers’ treatment of community banks could not have been more different: “Federal regulators issued hundreds of capital directives and other enforcement orders against community banks and allowed more than 450 community banks to fail.”

Wilmarth goes on to provide stunning examples of how, in the aftermath of the crisis, regulators put the squeeze on local banks, scrutinizing their loans and demanding even higher levels of capital than existing regulations called for, while explicitly exempting megabanks from the same requirements.

Post-crisis reforms in many respects continue this regulatory favoritism for big banks, Wilmarth contends. Although Dodd-Frank’s mortgage section includes many exemptions for small banks, the collective impact of the new rules is to further standardize mortgage lending. This works to the advantage of giant banks, which treat loans as commodities and use automated systems to evaluate borrowers, and it works against local banks, making it harder for them to do the kind of customized, relationship-based loans they excel at — and which their communities need.

Also taking a toll are complex new rules governing how much of their own capital banks must have on hand. Although they have long maintained higher capital levels than the megabanks, as well as lower loan loss rates, community banks now must file lengthy quarterly reports that are better matched to the complexities of big banks’ balance sheets. “The risk-weighted asset schedule of the call report has 57 rows and 89 pages of instructions,” noted Kansas City Federal Reserve President Esther George in a recent speech. “Yet no additional capital was required for the majority of community banks.”

As banking conglomerates have grown increasingly complex, policymakers have adopted increasingly complex regulations. But this actually benefits megabanks, a secret that Jamie Dimon, the head of JP Morgan Chase, revealed in an interview with a financial analyst. Dimon pointed out that while regulations may cut into his bank’s margins, they increase its market share, because Chase can afford to navigate the rules while its smaller rivals cannot. As the analyst reported: “In Dimon’s eyes, higher capital rules, Volcker, and OTC derivative reforms longer-term make it more expensive and tend to make it tougher for smaller players to enter the market, effectively widening JPM’s ‘moat.’”

The Mysterious Lack of New Banks

There’s another force contributing to community banks’ plummeting numbers, and it’s by far the most dramatic shift in the data. People are no longer opening new banks. This contrasts sharply to the five years prior to the crisis, when regulators were approving an average of 156 new banks each year, replacing roughly half of those lost to failures and mergers. Since the end of 2010, they’ve green-lighted only one new bank. (The lone success story is Bank of Bird-in-Hand, a small institution serving an Amish community, complete with a horse-and-buggy drive-through, in rural Pennsylvania.)

Some believe that the Federal Reserve’s policy of holding interest rates near zero since 2008 is the culprit. Small banks, in keeping with their focus on turning a community’s savings into loans, derive about 80 percent of their revenue from “net interest income,” which is basically the difference between the interest they pay on deposits and the interest they earn on loans. When interest rates are extremely low, it’s challenging to maintain enough of a margin to stay in the black, especially for startups. Big banks are far less sensitive to this, because they generate more income from fees — everything from checking account fees, which are higher at big banks than at small, to fees earned engineering complex securities.

During earlier low-interest periods, however, new bank formation did not flatline to this degree. A more influential factor may be a 2009 FDIC policy change that increased the length of time, from three to seven years, during which new banks are required to hold significantly more capital and undergo more frequent examinations. The difficulty of raising this much capital — typically over $20 million — in a depressed economy, combined with a more arduous application process adopted by the FDIC in the wake of the crisis seems to have made starting a new bank virtually impossible.

Should We Even Care About the Fate of Local Banks?

Not everyone believes that blocking the emergence of new banks is a bad thing. Former Slate columnist Matthew Yglesias has argued that America has “far far far too many banks” and railed against the fact that we are “perversely committed to preserving them.” Yglesias contends that community banks are poorly managed, more risky, and less competitive compared to large banks.

There’s nothing in the research record or our financial history to support his conclusions. In fact, local banks on the whole outperform their bigger competitors on several key measures of efficiency and profitability: they earn higher yields on their portfolios, have lower funding costs, and spend less on overhead.

They’re also better at allocating society’s capital. Local banks make smarter lending and investment decisions. They channel more capital to job creation and community wealth-building, while incurring significantly less risk, than their giant competitors. For the last fifteen years, compared to big banks, community banks and credit unions have had lower loss rates across nearly every category of individual and commercial loan. As our graph tracking overall charge-off rates shows, the difference has been especially pronounced during downturns, when defaults at megabanks tend to skyrocket.

Mortgage lending is a good example. Between 2009 and 2012, the default rate on home loans across all banks was sixteen times higher than for residential mortgages held by community banks, according to Tanya Marsh, a banking law expert at Wake Forest University. This difference can have profound effects on families and neighborhoods. One study found that, with other factors held constant, counties in which community banks account for a higher than average share of the market have endured significantly fewer home foreclosures.

But perhaps the most important reason to treat the decline of community banks as a national crisis is that, while megabanks devote much of their capacity to activities that enrich their own bottom line, very often at the expense of the broader economy, local banks are doing the real work of financing businesses and other productive investments that create jobs and improve our well-being.

Of all of our graphs, the most remarkable and telling is this one showing the share of small business lending provided by banks of different sizes. While credit unions and small and mid-sized banks account for only 24 percent of all banking assets, they supply 60 percent of lending for small businesses. The inverse is true of megabanks: they control 59 percent of the industry’s asset, but provide only 23 percent of small business loans. Given how much ground these giant banks have gained over local banks in the last seven years, it’s not hard to understand why small business lending has continued to shrink even as the economy has recovered.

Yglesias’s dream of a banking system comprised entirely of large regional and national institutions is fast becoming a reality in some regions. And the experience is not positive. In these places, financing for local businesses is significantly scarcer. And, according to a study published by the Federal Reserve, whenever a local bank fails, the surrounding community suffers: jobs growth slows, household income declines, and poverty increases.

Signs of a New Direction in Banking Policy

Local banks are not fading away in every state. They are numerous in North Dakota, where they hold over 70 percent of deposits. The state’s rural geography and robust economy partly explain the difference, but the main reason is the 96-year-old Bank of North Dakota (BND), the only state-owned bank in the nation. BND bolsters the capacity and competitive position of local banks by partnering with them on loans and providing wholesale banking services. The impact is significant. North Dakota not only has more banks per person than any other state, but the volume of business and farm lending they do is markedly higher (see our analysis), as is the share of mortgages held in state (which ensures that mortgage interest paid by residents benefits the state’s economy, not Wall Street).

A few states and cities — including Colorado, Santa Fe, and Seattle — are now studying BND as a possible model for their own public banks, while Vermont and Oregon have taken initial steps in that direction. But, as critical and potentially transformative as these efforts are, it will take years for new public banks to grow to an influential size. In the meantime, we urgently need to fix the broader failures in federal banking policy.

The good news is that several prominent lawmakers and regulators are calling for fundamentally changing our approach to banking policy. One idea gaining traction is to recognize that community banks and megabanks are very different types of businesses and ought to be governed by distinct regulatory regimes. “Neither I nor any community banker I know is advocating for a regulatory- or compliance-free world,” Centinel Bank’s Romera Rainey told participants at a recent Federal Reserve conference. “But we must have proportionate regulation… It’s two different [business] models.”

In early April, Thomas Hoenig, vice chairman of the FDIC, outlined a plan to do this by exempting from certain regulations banks that do not engage in securities trading, have limited involvement in derivatives, and hold capital equal to at least 10 percent of their outstanding loans and investments.

Another, more significant, idea picking up momentum is that the best way to achieve a healthy banking system is not to add layers of complex technocratic regulations, but to adopt simple rules about the size and structure of banks. On April 15, Senator Warren gave a speech in support of this approach. Among other changes, she advocated for breaking up big banks and reinstating a long-standing policy, overturned in 1999, that barred banks that accept deposits from engaging in Wall Street speculation, thus ensuring that taxpayers are no longer insuring and subsidizing risky trading.

In explaining why she favored a structural, rather than technocratic approach, Warren said: “When eleven banks are big enough to threaten to bring down the whole economy, heavy layers of regulations are needed to oversee them. But when those banks are broken up and forced to bear the consequences of the risks they take on – when the banking portion of their business model is easy to see and evaluate… regulatory oversight can be lighter.”

“Too much reliance on a technocratic approach also plays right into the hands of the big banks,” Warren observed. “[It] often causes a bad side effect: it raises the regulatory burden for community banks and credit unions…. What’s needed are smarter and simpler regulations, the kind of regulations that give smaller institutions a fighting chance to meet their compliance obligations without going bankrupt.”

Perhaps the best reason to shift back to simpler policies that focus on structure and scale is that, by insisting that banks be more rooted in their communities, we ensure that their own well-being naturally aligns with that of their borrowers. Romera Rainey says it best: “If our customers are not successful, there’s no way we would be.”

by Stacy Mitchell and Fred Clements

This article was first published as an op-ed in the Wall Street Journal.

Small business looms large in American political rhetoric. From the campaign trail to the floor of the U.S. House and Senate, members of Congress love to evoke the diner and dry cleaner, the neighborhood grocer and local hardware store. Ensuring the well-being of Main Street, we might easily assume, is one of their central policy aims.

The legislative track record tells another story. It is one in which the interests of big corporations are dominant, and many laws and regulations seem designed to bend the marketplace in their favor and put small, independent businesses at a competitive disadvantage.

Since the late 1990s, the overall market share of firms with fewer than 100 employees has fallen from 33% to 28%, according to U.S. Census data. There are nearly 80,000 fewer small retailers today than in 1999. Starting a new business also appears to have become harder. Despite their prominence in our tech-fueled imagination, the number of startups created annually fell by about 20% between the 1970s and the 2000s, Census data shows.

Dismissing these trends as merely the product of market forces misses the powerful way that government policy has tilted the playing field.

A report last month by the research organization Good Jobs First, for example, found that two-thirds of the $68 billion in business grants and special tax credits awarded by the federal government over the past 15 years went to big corporations. State and local economic development incentives are similarly skewed. While the members our business associations—mostly independent retailers—must finance their own growth, one of their biggest competitors, Amazon, has received $330 million in tax breaks and other subsidies to fund its new warehouses. Indiana, for example, gave the company a $5 million tax credit to open a distribution center in 2009.

Multinational companies also benefit from a host of tax loopholes. A local pharmacy or bike shop cannot stash profits in a Bermuda shell company or undertake a foreign “inversion.” The result is that small businesses pay an effective federal tax rate that is several points higher on average than that paid by big companies, according to a Small Business Administration study from 2009.

At a time when price competition is fierce and margins razor thin, these cost differences have a real impact on the ability of small businesses to survive. Yet efforts to reform corporate subsidies and close tax loopholes have gone nowhere.

Congress’s tacit support for further consolidation in the banking system is also undermining small independent businesses. From our perspective, local community banks are the most important part of the financial system, because they supply the lion’s share of small business loans. Yet Congress hasn’t lifted a finger as more than 500 have collapsed since 2008, according to federal data, swept away by the aftermath of a financial crisis they didn’t create.

Our members are feeling these losses. When we surveyed them earlier this year, of those looking to grow, nearly one in three reported being unable to secure a loan.

Rather than addressing this shortage of credit, and the decline of local banks at its root, the House passed a bill in January rolling back Dodd-Frank restrictions on Wall Street’s ability to hold collateralized loan obligations and trade derivatives outside of clearinghouses. The title of the bill, believe it or not, is the “Promoting Job Creation and Reducing Small Business Burdens Act.”

Even the Small Business Administration doesn’t seem to have the backs of small businesses these days. The agency has steadily expanded its definition of “small” in a way that has shifted its support away from the businesses that are truly small. While the agency’s overall loan portfolio has grown, the number of small-dollar business loans backed by the agency—those under $150,000—fell by two-thirds between 2005 and 2013, from 74,000 loans to just 25,000.

During this time the SBA guaranteed thousands of loans to low-wage fast-food franchises, often with high failure rates. Over the last decade, the agency backed loans to 1,969 Quiznos sandwich outlets, 787 Cold Stone Creamery stores, and 129 Blimpie sub shops. Altogether more than 40% of these outlets failed. The only winners in these deals were the big franchise parent companies, which earned fees from each of these new outlets without incurring any risk or liability when the franchisees failed and defaulted on their loans.

Small businesses hold a special place in the American political imagination for reasons that go far beyond their ability to create jobs and nurture healthy neighborhoods. Two centuries ago, our forefathers and mothers dumped thousands of pounds of tea into Boston Harbor to protest British policies that gave the powerful East India Company an advantage over local tea merchants.

Ever since then we’ve rightly viewed independent businesses as essential to liberty and democracy, a safeguard against the tyranny of concentrated power. It’s time that lawmakers reflect that value, not only in their rhetoric, but in their actions.

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and coordinates the Advocates for Independent Business (AIB), a coalition of 15 national small business organizations. Fred Clements is executive director of the National Bicycle Dealers Association, a founding member of AIB. 

In 2014, community-based financial institutions made 60 percent of all small business loans, even though they controlled only 24 percent of banking assets. For more detail on why small banks do so much more small business lending, see our article, “Banks and Small Business Lending.”

Small and mid-sized financial institutions devote a greater share of their assets to small business lending. For more detail on why small banks do so much more small business lending, see our article, “Banks and Small Business Lending.”

The reasons to choose a community bank or credit union range from getting the same services at a lower cost to supporting productive investment instead of speculative trading. But while it’s one thing to think about the qualities that are important in our banks, it’s another to find particular local banks that are enacting them.

A new tool, called Bank Local, aims to make that process easier.

Bank Local maps every banking institution in the U.S., and uses data from three federal agencies, plus its own algorithm, to assign them a Local Impact Rating. Users can type their address into a bar on the site’s homepage, and find a map and list of how nearby financial institutions compare.

The project was created by Bob Marino and Nick Plante, who initially schemed it up as a tool for their own area. Both are board members of Seacoast Local, a local economies non-profit that works in eastern New Hampshire and southern Maine. They wanted to come up with something to help people move their money to a local bank or credit union, and take what they describe in an early post on their website as a “small, pragmatic action” against “the problem of Bigness in banking.”

“We thought that one of the venues for change would be to put that information out there for consumers who care about these issues,” Marino says.

Working with experts, including Stacy Mitchell here at ILSR and the economist Olga Bruslavski with the National Credit Union Administration, they came up with criteria to quantify a bank’s local impact. They decided on seven: Small business lending, location of headquarters, branch concentration, bank ownership, bank size, small farm lending, and speculative trading.

Take small business lending, the factor that Bank Local weighs most heavily. Small businesses, which create the majority of new jobs, depend heavily on small, local banks for financing. In 2014, even though community-based financial institutions controlled just 24 percent of all banking assets, they made 60 percent of all small business loans. As the banking sector has become increasingly concentrated, small businesses have had a harder time accessing the capital that they need to grow.

In Bank Local’s algorithm, if a bank dedicates 20 percent or more of its total assets to small business lending, it earns three points toward its total score and is marked as “outstanding” in that category. The lowest tier is for banks that devote less than 5 percent of their total assets, which receive a score of zero and a rank of “insignificant.” In Oakland, Calif., for instance, Mission National Bank uses 24 percent of its assets for lending to small businesses, and none for speculative trading, which helps it earn a high overall score for local impact. Citibank, meanwhile, deploys just 1 percent of its assets for small business loans and 9 percent for speculative lending.

Once Marino and Plante had come up with the criteria and the algorithm for scoring, they were able to expand their new tool to cover the rest of the country. They pulled all of the data they needed, and then used a service that geolocated every financial institution.

Along the way, they found that there isn’t much else out there that’s like their tool. One predecessor was the Oregon Banks Local project, which laid helpful foundations in determining criteria, but that project only looked at financial institutions within the state of Oregon, and it no longer exists. At Bank Local, Marino and Plante plan to continue to update the data annually.

“I think what’s really great about the site is that it’s full coverage of every institution in the country, and every town and city in the country, and it’s not going to be static,” says Marino.

There have already been surprises. For starters, Marino says, it’s not only the predictable giants, like JP Morgan Chase and Bank of America, that aren’t good stewards of local lending. There are also a number of large regional banks that fall below small community institutions in Bank Local’s algorithm.

The project has received recognition from the University of New Hampshire’s Social Venture Innovation Challenge, and Marino and Plante hope that it will be a resource people can use to help them move their money.

Already, they know of at least one success. Since starting the project, Marino himself has moved his own banking to an institution in his town.

Click to download the full report.

The United States is much less a nation of entrepreneurs than it was a generation ago. Small, independent businesses have declined sharply in both numbers and market share across many sectors of the economy.  Between 1997 and 2012, the number of small manufacturers fell by more 70,000, local retailers saw their ranks diminish by about 108,000, and the number of community banks and credit unions dropped by half, from about 26,000 to 13,000.  At the same time, starting a new business appears to have become harder than ever. The number of startups launched annually has fallen by nearly half since the 1970s.

As stunning as these figures are, there has been remarkably little public debate about this profound structural shift taking place in the U.S. economy. We tend to accept the decline of small business as the inevitable result of market forces. Big companies are thought to be more efficient and productive; therefore, although we may miss the corner drugstore or the family-owned auto repair shop, their demise is unavoidable, and it’s economically beneficial.

But our new report suggests a different, and very troubling, explanation for the dwindling ranks of small businesses. It presents evidence that their decline is owed, at least in part, to anticompetitive behavior by large, dominant corporations.  Drawing on examples in pharmacy, banking, telecommunications, and retail, it finds that big companies routinely use their size and their economic and political power to undermine their smaller rivals and exclude them from markets.

These abuses have gone unchecked because of a radical change in the ideological framework that guides anti-monopoly policy. About thirty-five years ago, policy-makers came to view maximizing efficiency — rather than maintaining fair and open markets for all competitors — as the primary aim of antitrust enforcement. This was a profound departure from previous policy and America’s long-standing anti-monopoly tradition.  Over time, this ideological shift impacted more than antitrust enforcement. It infused much of public policy with a bias in favor of big business, creating an environment less and less hospitable to entrepreneurs.

This report presents three compelling reasons to bring a commitment to fair and open markets for small businesses back into antitrust enforcement and public policy more broadly:

1.   Small businesses deliver distinct consumer and market benefits, and in some sectors provide more value and better outcomes than their bigger competitors. And they often achieve these superior results because of their small scale, not in spite of it.

2.   An economy populated by many small, independent businesses produces a more equitable distribution of income and opportunity, creates more jobs, and supports an expansive middle class.

3.   Small-scale enterprise is compatible with democracy, while concentrated economic power threatens our liberty and our ability to be a self-governing people.

To restore competition and America’s entrepreneurial tradition, we can draw on our own rich antimonopoly history. In the late 19th and early 20th centuries, reformers enacted policies to break up concentrated power and ensure a level playing field for small businesses. These laws are still on the books, and the principles they embody are still relevant. With a fresh look at how we enforce them, these policies can go a long way toward reviving competition and small business. This report concludes by outlining several specific steps for doing so.

Download the full report.

About This Paper
This paper is one of seven papers in the Report on Antitrust and Entrepreneurship, which is part of an American Antitrust Institute (AAI) project, made possible by a grant from the Ewing Marion Kauffman Foundation. The Report’s papers examine the important relationship between entrepreneurial activity and competition policy and enforcement.  You can learn more about this important project and read the other papers here.

Welcome to episode sixteen of the Building Local Power podcast. For full transcript of the podcast, click here.

In this episode, Christopher Mitchell, the director of ILSR’s Community Broadband Networks initiative and Stacy Mitchell, the co-director of ILSR and director of ILSR’s Community-Scaled Economies initiative interview Building Local Power’s first guest outside of ILSR. Our guest this week is Justin Dahlheimer, the President of the First National Bank of Osakis in west-central Minnesota. The trio discuss the benefits of community banking and how banks that have a vested stake in their community lend in ways that increase the vitality of communities like Osakis.

“We’ve got a stake in every customer’s personal financial livelihood. It should be that way. It’s embedded transparency. It’s accountability,” says Justin Dahlheimer of the relationship community banks have with the people that they serve. “We want to weather the community risk and be able to charge off loans, not come back after customers and ruin financial lives and move on to the next thing… [We want to] work together and leverage dollars to bring more wealth into the community versus just recirculating or poaching wealth from other banks. We want to create that wealth.”

Get caught up with the latest in our community banking work by exploring the resources below: 

Top 5 Reasons to Choose a Community Bank or Credit Union

Tools for Starting a Local Move Your Money Campaign

Public Banks: Bank of North Dakota

Here are the reading/watching recommendations from the group this week:

From our guest, Justin Dahlheimer:

Check out all of Justin’s “Financial Literacy Series” on the First National Bank of Osakis’ Blog: https://fnbosakis.com/investing-in-you/.

From Chris Mitchell:

A detailed deep dive into the state of banking for Americans from Mehrsa Baradaran, titled “How the Other Half Banks.” Available from Harvard University Press, here: http://www.hup.harvard.edu/catalog.php?isbn=9780674286061.

View the full transcript of the podcast, below.If you missed our previous episodes make sure to bookmark our Building Local Power Podcast Homepage. Please give us a review and rating on iTunes or wherever you subscribe to podcasts.

Full Transcript of Podcast:

Subscribe: iTunes | Android | RSS

Audio Credit: Funk Interlude by Dysfunction_AL Ft: Fourstones – Scomber (Bonus Track). Copyright 2016 Licensed under a Creative Commons Attribution Noncommercial (3.0) license.

An article written by ILSR Co-Director Stacy Mitchell has been named “Best Antitrust and Small Business Article” as part of the annual Jerry S. Cohen Award for Antitrust Scholarship.

The piece was published by ILSR as Monopoly Power and the Decline of Small Business and also appeared in the academic journal The Antitrust Bulletin under the title “The View from the Shop—Antitrust and the Decline of America’s Independent Businesses.”

The Cohen Award was created through a trust established in honor of the late Jerry S. Cohen, a highly regarded trial lawyer and antitrust writer. The 2017 award committee consisted of Zachary Caplan, Warren Grimes, John Kirkwood, Robert Lande, Christopher Leslie, Roger Noll, and Dan Small. Information on other articles recognized by the committee can be found here.

Mitchell’s article notes that small, independent businesses have declined sharply in both numbers and market share across many sectors of the economy.  It argues that this decline is owed, at least in part, to anticompetitive behavior by large, dominant corporations.  Drawing on examples in pharmacy, banking, telecommunications, and retail, it finds that big companies routinely use their size and their economic and political power to undermine their smaller rivals and exclude them from markets.

The article presents three reasons to bring a commitment to fair and open markets for small businesses back into antitrust enforcement and public policy, and concludes by outlining several specific steps for doing so.

Read a summary of the report.

Download the full report.

For updates on ILSR’s independent business and anti-monopoly work, sign-up for our monthly Hometown Advantage Bulletin and follow Stacy and ILSR on Twitter.

For several decades, the term was a fixture of newspaper headlines and campaign speeches. Then something changed.

This article was first published in  The Atlantic.

If “monopoly” sounds like a word from another era, that’s because, until recently, it was. Throughout the middle of the 20th century, the term was frequently used in newspaper headlines, campaign speeches, and State of the Union addresses delivered by Republican and Democratic presidents alike. Breaking up too-powerful companies was a bipartisan goal and on the minds of many voters. But, starting in the 1970s, the word retreated from the public consciousness. Not coincidentally, at the same time, the enforcement of anti-monopoly policy grew increasingly toothless.

The story of why the word and the movement dropped off the map in tandem carries lessons about how an economic policy’s effectiveness can be its own undoing, and about how people are thinking about corporate power today. Because monopoly is back. As concentration has soared to levels not seen in decades, economists are talking about monopoly again; recent scholarship has linked consolidation with rising inequality and other economic ills. Politicians on both the left and right are talking about it, too—the announcement last week that Amazon is planning to buy Whole Foods has refocused some politicians’ attention on the subject.

Sentiments were similar back in the 1920s, the last period of high levels of corporate concentration and inequality. Isolated protests against big business erupted periodically then as they do now. People who lived in small towns fought the grocery giant A&P’s displacement of local retailers; farmers rallied against the control Wall Street banks had over the agricultural industry; and residents of big cities protested the high prices charged by holding companies that had gained control of the electricity supply. …

Continue reading:  Read the full article in The Atlantic.

In 2014, community-based financial institutions made 60 percent of all small business loans, even though they control only 24 percent of banking assets.… Read More

The post Small Business Lending by Size of Institution, 2014 appeared first on Institute for Local Self-Reliance.

Small and mid-sized financial institutions devote a greater share of their assets to small business lending.… Read More

The post Small Business Loans as a Share of Assets, 2014 appeared first on Institute for Local Self-Reliance.

The number of community banks has declined sharply in the last few years. Part of the decline is owed to the fact that virtually no new banks have been created since 2009. Between 2004 and 2008, an average of about 300 commercial banks disappeared each year, mostly as a result of mergers. But these losses were offset by the creation of 146 new banks each year on average. From 2009 to 2013, we continued to lose about the same number of banks annually, but gained only 6 new banks on average each year. … Read More

The post Number of New Banks Created by Year, 1993 to 2013 appeared first on Institute for Local Self-Reliance.