February 25, 2016
We don’t often talk about failures as success stories shine brighter. However, we have recently discovered some interesting data on the banking industry that indicated worrying for banks’ statistics. The FDIC keeps track of registered and operating banks and also has data on failed ones. Not to be too dramatic – we've included banks both closed and those acquired and consolidated as part of the failed ones.
According to the FDIC, in the past 15 years, more than 500 banks operating in the US have failed. While FinTech seems to be a big enough headache for bankers, this number will certainly be a contribution.
If we were to look at the most failed state, it would be Georgia as 17% of the banks in the 500+ list that have been either closed or consolidated were operating in the state. Second place goes to Florida with 14% of failures. Illinois is on the third place with 12% of closed banks operating in the state.
California is probably the most interesting case with 8% of closed banks. On one hand, California is one of the global centers of FinTech innovation and forward-thinking entrepreneurs, which could be boosting the stats on the failure of banks. On the other hand, since California’s banks are the closest ones to innovation, they have an opportunity to leverage available resources (read: startups).
Let’s look at the acquirers as there is a range of interesting names we don’t often hear of.
While the vast majority of acquirers have been involved in 1–5 deals (with a prevalence of 1–2 deals), 21% of the companies have had 6–14 deals. Interestingly, U.S. Bank is one of the most active ones with 3% of acquisitions (14 deals). The second place is held by State Bank and Trust Company (GA) with 2% of deals made by the institution (12 acquisitions). Ameris Bank also accounts for around 2% of acquisitions with 11 deals.
While most of the names may not ring any bells, there are also well-known ones in addition to U.S. Bank. Among those are JPMorgan, Citi, 1st United Bank, Bank of Essex, Umpqua Bank, TD Bank and others.
Along with the acquired ones, there are also banks that have unfortunately been closed and can be labeled as failed ones. A total of 26 banks in 11 states have been closed due to various reasons excluding an acquisition. The most number of banks have been closed in Georgia – seven.
Logically, most banks were pushed out of business after the economic crisis stroke – between 2009 and 2012. Before 2008, the number of banks that failed was significantly lower than during the post-crisis years. However, 2015 brought a relief and a certain sustainability to the industry as only eight banks were closed for any reason last year. Regardless of how FinTech may be hurting banks, the last three years show a positive trend and a decreasing number of failures among financial institutions. Just to compare, five years ago, more than 150 banks closed down in a year. In 2015, the number decreased by 95%.
While certain banks may feel threatened by FinTech, the sustainability of the industry seems more important. There are banks that have already placed FinTech in their value chains and are leveraging amazing opportunities young and disruptive startups may provide.