Compared to Canada, The U.S. Has Way TOO Many Banks: Bank Failures Might Be Good for the U.S.
With more than 8,000 banks, does the U.S. have too many banks? The comparisons to Canada below provide some perspective. According to Wikipedia, Canada has a total of 72 banks, and that number is very high by historical standards.
From 1920 to 1980, Canada had only 11 banks. By May 2006, that number had increased to more than 60 in the wake of regulatory changes permitting the entry of foreign competitors.
In contrast, the U.S. currently has almost 8,200 banks, or about 114 banks for each one bank in Canada, see chart below.
Of course, the U.S. population (304 million) is much higher than Canada's (33 million), so the chart below shows the number of banks per million persons in each country, and the population-adjusted number of banks in the U.S. is still more than 12 times larger than Canada (27 banks per million in the U.S. compared to 2.2 banks per million in Canada).
Bottom Line: Maybe the U.S. has too many banks, and the recent bank failures are a positive development for the U.S. economy and banking system. Weak, failing banks can't facilitate the flow of credit in the economy, and the banking system is better off without those banks. Keep in mind that the assets, loans and deposits don't disappear when a weak bank fails, those assets, loans and deposits are usually taken over by a larger and/or stronger bank.
See the FDIC's list here of the 81 banks that have failed in 2009, and notice that in every case the deposits were assumed by another bank, and in most cases either all or most of the assets of the failed bank were purchased by the acquiring bank. It should also be noted that in most cases the assets/loans of the failed bank actually exceed the value of the deposits, although it's not clear how those assets are valued.
Even if we lost another 1,000 banks as some are predicting, we would still have more than ten times the number of banks in Canada, adjusting for the differences in population. We should welcome, not resist the forces of Schumpeterian creative destruction in the banking system.