THE DISAPPEARANCE OF SMALL BANKS

Weekly Insights from Sol Berkoff
Principal at Charleston Capital, Inc.

The FDIC came out with its Quarterly Banking Profile for 18Q4 last week. Overall, US banks are in excellent shape.  There were no bank failures in all of 2018.  The sector is expecting record profits.
 
But the number of small banks continues to decline.

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A major reason for the decline in small business finance in the US is the disappearance of the small bank.  Where are all of the small banks going?  They are not failing – they are being absorbed by larger banks. For a nice illustration of that, see the chart below.
 
Large banks have little incentive to finance small businesses.  The cost of underwriting a large loan is the same as the cost of underwriting a small loan.
 
In 2003, loans to small businesses reached a high of 29.1% of all C&I loans.  Today loans to small businesses make up only 16.99% of C&I loans.
 
We at CCI are looking to fill in the small business funding gap.  We like the idea that our future is tied to our ability to successfully get small businesses the capital they need to grow!  
 
Data Source: FDIC

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