Have you noticed fewer and fewer bank branches as you drive around? You're not the only one, as recently released data from the FDIC reveals a number of surprising trends have emerged surrounding where Americans are parking their dollars.
Former Conneaut Savings Bank Branch. Source: Flickr / Nicholas Eckhart.
The downward trend
In the latest release of its Summary of Deposits report, the Federal Deposit Insurance Corporation (FDIC) -- the government entity that insures if a bank goes under that customers won't see their personal cash go down with it -- revealed the total number of deposits in the U.S. surpassed the $10 trillion mark, growing by more than 7% over the last year to now stand at $10.1 trillion.
With the economy on the mend as the recovery continues to plod along, this should likely come as no shock. But the biggest bit of news was that the number of bank branches in the U.S. stood at their lowest level since 2005.
In total, there were 1,617 fewer branches in the U.S. in June of this year versus last year.
This continues the trend Americans have been seeing for years, as the number of branches in the United States has continued to decline since they peaked in 2009.
Thanks to advances in technology, American consumers are now able to do routine transactions either online or on their smartphones that just a few years ago would have required them to visit a branch. As a result, the banks with best technology -- which are often the largest -- have been able to cut their branches, while at the same time growing their deposit footprint.
For example, since 2009, the four largest banks in the United States -- Bank of America(BAC 1.59%), JPMorgan Chase(JPM 2.70%), Wells Fargo(WFC 1.57%), and Citigroup(C +1.10%) -- have seen their total deposits rise by 44% (or $1.1 trillion), but the total branches at the banks have actually fallen by more than 7%:
But what has this meant for the smaller banks in the United States? An incredible amount.
Over the last two decades, the number of banks with over $10 billion in deposits has grown from 80 institutions in 1995 to 110 this year. Whereas those with less than $10 billion worth of deposits has been nearly cut in half, falling from 12,202 in 1995 to 6,555 in 2014.
But that doesn't even begin to tell the whole story. Since 1995 the total number of deposits in the U.S. has grown from $3.2 trillion to the previously mentioned $10.1 trillion. And as shown below, nearly all of that growth has come from the biggest banks:
Or as shown a little differently, in 1995, banks with over $10 billion in deposits held just over one-third of the deposits in the U.S. But now the biggest banks hold more than 75% of all deposits:
As you can see, the banking industry looks vastly different now than it did twenty years ago. And there is no sign this change will slow down anytime soon.
The key takeaway
Put simply, the banking industry as we know it has undergone radical change over the last two decades. The biggest banks keep getting bigger, whereas the smaller ones have begun to either disappear or attempt to merge themselves together to enable themselves to be more competitive relative to the biggest banks.
As a result of this, with the banking industry becoming more concentrated, the Federal Government will likely continue to have to enforce heavy regulation to ensure its safety. This reality is one of the reasons why colleague John Maxfield declared, The New World Order of Banking: Boring and Less Profitable.
While the reduction in branch counts at the biggest banks will benefit their bottom lines thanks to cost savings -- especially at Bank of America -- these savings will likely not outweigh the heightened expenses and opportunity costs resulting from increased regulation.
In spite of all this, there will be some banks that make for great investments in the years and decades to come, but we all must remember banking in the future will look very different than it has in the past.
