Should You Worry About America's Shrinking Banks?

Should You Worry About America's Shrinking Banks?

NEW YORK (MainStreet) – In America, the supposed global headquarters of free-market capitalism, the unthinkable has occurred: Not one new bank opened in the U.S. last year.

A report from the Financial Times points out that 2011 was the first year in decades in which the U.S. has not seen a new U.S. startup lender. The New York Times concluded that 2010 was the first year ever that more banks closed in the U.S. than opened.

The Federal Deposit Insurance Corporation notes that 90 banks closed in the U.S. this past year, with not a single new financial lending institution opening its doors.

So what happened to free markets, and to the banks that fuel them? And what does it mean for consumers? First, there are some caveats about what the Financial Times calls a "financial institution" to point out.

There were three new bank charters introduced in 2011, but none of the three meet the criteria needed to be considered as the genuine article, which the Times defines as “de novo” banks – newly chartered institutions that were not created through the takeover of an existing institution. Consequently, 2011 was the first year since 1984 when zero de novo banks opened in the U.S.

Analysts told the Times that the trend has been building for some time, and that a lousy market for financial services companies is largely to blame for the dearth of new banks. Without significant profit potential, the enthusiasm for opening new lending institutions is muted, and that seems to be the case today.