Dear Clients & Friends,
To say March was a busy month for the banking sector is an
understatement. With the collapse of Silvergate Capital , Silicon Valley Bank,
and Signature Bank followed by the near-death experience of First Republic
and multiple regional banks, the terms “banking contagion, collapse, and
failure” reappeared in everyday top google searches. Mark Twain said it best:
“History never repeats itself, but it does often rhyme.” March 2023 seemed to
be reminiscent of the 2008 financial fiasco, with several bank runs,
government bailouts, congressional hearings, etc. Let me reiterate what Matt
has stated previously: we at MORWM don’t believe that this is another
2008. These bank collapses were very specific and niche situations that don’t
represent the entirety of the banking world. Their depositor base was not
diversified from a geographical or depository standpoint, as they
predominantly catered to the crypto, fast-growing tech , and startup
communities. The key point here is that diversification matters!
We wanted to take this opportunity to provide some key statistics about our
countries current banking sector. As my finance professor repeatedly says:
“Pop Quiz, anyone?”
According to the Federal Deposit Insurance Corporation (FDIC), the United
States has the most banks in the world, with a total of 4,135 banking
institutions and 71,190 branches. This is down from 4,237 institutions and
72,444 branches in 2021. Who can guess which country comes in “close”
second place? Our friends in the United Kingdom, with a total of 311 banking
institutions. You read that correctly!
Let’s review this from a per capita basis. The United States has around 12.8
banks per million people. While the U.S. ranks towards the top of that
hierarchy, countries such as Luxembourg, Switzerland, and Singapore outpace
us.
Who can guess how many banks we had back in 1980? According to the FDIC,
we had a total of 14,434 banks. We can clearly see that banking institutions in
the United States underwent massive consolidation, as 10,208 banks are no
longer with us, and the expectation is that this trend will continue in the
coming years.
Now, let’s look at the United States and our largest banks. As of mid-March,
bank deposits totaled ~$15.37 trillion. The five largest banks in terms of
deposits are: JP Morgan (~15.2%), Bank of America (~12.6%), Wells Fargo
(~9.0%), Citigroup (~9.0%), and US Bancorp (~3.4%). These five banks
account for ~49% of total bank deposits, with the remaining banks accounting
for the rest. When we include the next five largest institutions (PNC, Truist,
Goldman Sachs, Charles Schwab and Morgan Stanley), the top ten account for
nearly 60% of bank deposits. Let’s compare these numbers to 2021: the top
five banks accounted for ~61.0% of total deposits while the top ten banks
represented ~71.8%. For the record, Silicon Valley and Signature Bank each
accounted for ~1.1% of deposits in 2023.
Enough of the pop quiz! Here’s the real question. In your opinion, is the United
States overbanked? I’ll let you be the judge but let us know what you think.
On a side note, if anyone has any questions about FDIC coverage for your
bank accounts, the mechanics behind FDIC insurance, or how to increase your
coverage, please feel free to reach out to us! We’ve had various questions
about this topic so don’t be shy if you do.
Onward and upward,
Devin
*Data provided by Y Charts and FactSet
https://banks.data.fdic.gov