Date of Completion

Spring 5-1-2013

Thesis Advisor(s)

John P. Harding

Honors Major



Finance and Financial Management


Since the early 1980s, the United States banking industry has undergone a variety of structural changes. In 1980, there were over 14,000 banking institutions; now, there are about 6,000 institutions remaining. In addition to the declining number of institutions, industry assets have become more highly concentrated in several very large institutions. For example, the percentage of industry assets held by banks with $10 billion or more in assets (adjusted for inflation) has increased from about 46% in 1992 to 80% in 2012.

Many of the structural changes came in response to a changing regulatory environment. Banking regulations began to shift dramatically both nationally and internationally in response to the growing complexity of modern banking and to the Savings and Loan Crisis in the late 1980s. As a result, large, national and international institutions were able to achieve greater operating efficiency and profitability through changing business models with a focus on large transactions. As banks achieved cost savings with larger scale operations, the number of institutions declined while assets became more concentrated among those that remained. This fact has wide-ranging implications for the future of the U.S. banking industry, including the future role of different sized banking institutions in relation to different types of customers.

Even with the changes, smaller institutions have an important role to play in the banking industry and the economy. Indeed, despite consolidation, many of the new entrants to the banking industry have been smaller firms. Generally, these smaller institutions provide a different set of products and services than do larger institutions. Accordingly, they earn income in a different manner than larger banks, usually earning more interest income and less non-interest income than the larger banks. Regulatory change in response to the financial crisis may limit the amount of leverage used by larger banks and reduce non-interest income, greatly reducing two historic advantages larger banks have held over smaller banks. As a result, the post-crisis world may present significant opportunities for smaller institutions.