Straight Talk – Reconsidering consolidation

The number of bank charters across the country has been declining for decades. There are some 7,000 banks in the country today compared to the mid-1980s when the number topped 15,000. Specifically, the number of bank and thrift charters has declined by 59 percent between 1984 and 2011. Many experts predict a continued decline in the number of charters. The idea of more credit allocation decisions being concentrated into even fewer hands is troubling..FDIC Chairman Martin Gruenberg offered insight into the consolidation trend when he spoke in Las Vegas March 13 at the annual convention of the Independent Community Bankers of America. He commented that he does not expect the pace of acceleration to increase. In fact, he expects it to slow down..Gruenberg noted that about half the consolidation since the mid-1980s came about as the result of changes in state and federal laws which allowed banks to merge and branch across state lines. Unit banking laws dating back to the early 20th century kept the number of charters high; once the barriers to branching came down, bank owners combined charters through M&A at an accelerated pace..Gruenberg also noted the historic significance of two big financial events: the ag crisis of the 1980s and the recent "great recession." These economic periods were far more devastating than a cyclical economic slowdown. Between 1982 and 1992, there were 2,808 banks and thrifts that failed; and since the start of 2008, there have been 475 bank failures. These two periods of crisis were abnormally impactful..Gruenberg's point is that the pace of consolidation is actually rather mild, excluding the impact of changes in bank structure law, and the impact of the two major financial crises. Gruenberg argues these are anomalies not likely to be repeated; that means the natural pace of industry consolidation should be much slower than what we've witnessed in the last 25 years. That's good news for everyone interested in the health of the community banking industry..ON ANOTHER NOTE, I want to pass along condolences regarding the sudden death of Douglas Jilek, the 52-year-old community banker with banks in Lester Prairie and Silver Lake, Minn. An active independent banker, Doug was a former president of the Independent Community Bankers of Minnesota, and a former president of the Bank Holding Company Association. He died early in the morning on March 15. He was in Las Vegas for the ICBA convention when he suffered an apparent heart attack. We mourn this sudden and tragic loss. His well-known jovial nature and zest for life will be missed.