Guest Post: The Growth of the U.S. Banking System

Walk down any Main Street, and you’re likely to see a wide range of shops, from local boutique shops, to regional businesses, to large national and international chains. They exist because people choose to shop there. Many started out small, and now have grown bigger over the years.

You’ve probably noticed the same thing when it comes to banking. Individuals have a choice of whether to place deposits with their local credit union or community bank, all the way up to a national or international bank. Maybe they enjoy the intimacy and good feeling of “shopping local” with a smaller bank; or perhaps they prefer a larger bank, one that can provide a variety of services and accessibility that goes beyond the capabilities of a smaller one. Either way, many of these larger banks started out small and have grown over time.

Now imagine what it would be like to be a financial officer of a large U.S.-based nonbank company. You do business all over the country and in many major economic hubs throughout the world. Could your needs be financed by your local credit union? No – that small institution simply could not handle your global and diverse needs. But just because you need a bank that’s bigger than your town’s credit union, doesn’t mean you can’t still shop local. In this case, “shopping local” means that the bank you do choose is based in the U.S. You also have the choice of doing business with a bank based outside the U.S. but have a U.S. branch presence. Which one do you choose? Well, that’s up to you; it probably depends on the unique financial needs of your firm, where in the world you conduct most of your business, or simply, your preference.

This is the state of banking today, and that’s what we looked at in our most recent HPS Insight report entitled “Banking on Our Future: The Value of Big Banks in a Global Economy.” Here in the U.S., we have a competitive financial sector with banks of all sizes and specialties, based on the needs and preferences of those who live and do business here.

What we found was that the growth of the sector correlates closely with the growth of the economy at large, and the diversity of the sector reflects the diversity of its customers.

Below is an excerpt and chart, but you can read the whole thing by clicking the link above.

“Critics have painted the picture of an out of control, large banking sector that must be reined in. Yet, the data shows that the U.S. banking sector has actually grown proportionately with the rest of the economy (Exhibit 1). U.S. exports and the S&P 500 have both grown at the same rate as the assets of U.S. banks over the past two decades.”

Patrick Sims is a Director at Hamilton Place Strategies, a policy and communications consulting firm based in Washington. Prior to joining HPS, Patrick acted as the lead research analyst in the financial institutions’ group at SNL Financial and worked for the CFA Institute.

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