The Changing Banking Structure : What Expansion Strategies are Community Banks Adopting ? AUGUST 2007

The last few decades have been a period of tremendous change in the U.S. banking industry. One of the most notable changes in this period has been a rapid consolidation among banks and banking organizations. Technological change, financial innovation, and the liberalization of bank expansion powers have all contributed to this consolidation trend. By 2006, the number of banks and banking organizations operating in this country had fallen to just over one-half the 1980 levels. This decline in the banking population is even more noteworthy given that the total number of banks in operation had remained virtually constant from 1934 to the mid-1980s. Another major change in the banking landscape is a significant jump in the share of all U.S. banking deposits held by the largest organizations. The share held by the 10 largest organizations rose from 17 percent in 1985 to more than 44 percent in 2006. While merger activity by large banks has drawn a great deal of attention, the majority of mergers have involved smaller banking organizations. One study, for example, found that 91.5 percent of all bank and thrift acquisitions between 1994 and 2003 involved a target organization with less than $1 billion in assets. 1 In addition, 45 percent of the mergers during this period were completed by acquiring organizations that had less than