America’s banking industry is shrinking, with the number of FDIC-insured banks in the U.S. down by nearly half since 2005, according to the Federal Deposit Insurance Corporation.
“Large banks have gone on a merger spree,” said Rohit Chopra, former director of the Consumer Financial Protection Bureau. “[Big banks] gobble up regional and community banks.”
FDIC data shows that the U.S. has nearly 4,500 banks. Canada has only 79 banks, according to the Canadian Bankers Association.
“Canada’s banking system is one of the most concentrated banking systems in the G7 countries,” said Cristie Ford, a professor of law at the University of British Columbia in Canada.
During the 2008 financial crisis, the World Economic Forum named Canada’s banking system the soundest in the world.
“I think another reason why the Canadian banking system is so stable is honestly because the players are so big,” Ford said. “They are able to really collectively rely on this base of economic strength in the Canadian economy.”
However, former chair of the FDIC Sheila Bair cautioned, “Market domination is never a good thing. You lose competitive pricing, you lose innovation, you lose competitive spirit.”
In June, the Federal Reserve proposed lowering capital requirements for big banks.
“If these policies keep up,” Bair said, “we’re going to see even more consolidation.”
Watch the video above to learn more about why America’s banking industry is shrinking and what the U.S. can learn from Canada’s more concentrated system.
