Few things are as irrational as the American banking system. This chart shows consolidation over the past half century.
Our banking system has been a political football from our founding days. Alexander Hamilton, the true genius of the American Republic and the author of nearly all the Federalist papers was also the creator of our pro commerce financial system. Nearly every detail of it.
However, the city hating, commerce hating, ordinary people hating, slave owning founder of the Democrat Party, Thomas Jefferson, did everything in his power, including running for the office of President, to thwart the success of finance, commerce and the modern world.
As the anti-Hamilton, Jefferson set in motion the battle between a rational banking system that would have been stable and conducive to strong economic growth and sheer chaos that brought financial panics every five years and monetary lunacy nationwide.
At its wildest, as described by Mark Twain on a Mississippi riverboat, a gambler could ride from St. Louis to New Orleans and make money playing cards by memorizing the books of currency values. Each local bank issued currency. He would only play for pots that had valuable currency and would use the least valuable currency for his own plays in the pot. The values were published in books that evaluated how much gold the bank had in reserve. One bank’s dollar could be worth four or five times the value of another bank’s. The gambler memorized the different values.
At the same time gold discoveries in the California Sierra and silver discoveries in the Rockies were dropping the value of gold by 40% to 90%.
After the Civil War the U.S. government issued the single currency we now use. Backing it with gold and silver became a political issue. In either case the value fluctuated with new ore discoveries. Banks came and went.
The Federal Reserve was set up to create stability. Established in 1913, It wasn’t allowed to work for 35 years as the U.S. treasury limited its function.
The government insurance program created in 1933 (FDIC) to insure deposits put an end to the regular runs on banks and incredible bank volatility that had been the norm for 140 years.
When I was in banking in the 1960’s, my big bank was continually buying smaller banks. Economies of scale. The deposit side of banking was being handled by computers. That continued unabated until the S&L failures of the 1980’s when S&Ls were made into banks, and then sold to bigger banks in the 1990’s.
Banking is very simply. Consumer checking accounts bring in the money that the banks lend to corporations. Loans are all 100% secured and have a loss rate of 0.5%. The only issue about bank size was the number of customers; state banks were limited in size, they became national after 1997 when Sandy Weill at Citicorp got Congress to permit it. Another wave of consolidations, usually encouraged by the Fed. and the Treasury.
The current financial system is still unstable, because it is still designed by Democrats. The world suffers as a result. Most financing is outside of banking but that hasn’t dawned on the political world.
Postscript. The two banks shown are Bank of California 1970 where I was a Vice President and Bank of America where I started the marketing research dept and arranged for the land this dark building was build on.