Economic planet | Stress in the land of a thousand banks

The world’s major central banks are preparing to lower their key rates, an expected shift of utmost importance for banks and all financial institutions. In the United States, country of a thousand banks, this could cause a stir.

Published at 12:56 a.m.

Updated at 8:00 a.m.

Last year, the rapid rise in interest rates signed the death warrant of three American banks, Silicon Valley Bank, Signature Bank and First Republic Bank, and forced the intervention of the Federal Deposit Insurance Corporation (FDIC), the American banking policeman, to reassure the markets and limit the damage to the financial system.

This independent organization created to ensure the stability of the American financial system and maintain consumer confidence has its work cut out for it. It has always had one since its creation in 1933. Unlike Canada, where banks are a restricted and almost immovable club, the United States is a country where banks are born and die at the rhythm of economic cycles.

In his recently published autobiography, the former president of the National Bank Louis Vachon questioned the propensity of Canadian banks to absolutely want to establish themselves in the most competitive market in the world when there are many space elsewhere…

The competition that marks the American banking sector has given rise to mammoths like the Bank of America or JPMorgan Chase, and also to a multitude of regional banks which are showing innovation to get their share of the pie.

The Silicon Valley Bank of San Francisco, for example, specialized in financing technology start-ups which, after having benefited greatly from the pandemic, were forced to tighten their belts. These companies needed to draw on their savings, which their banker had not anticipated…


There are currently some 4,500 banks operating in the United States. That’s a lot, but there were twice as many in the 2000s. The FDIC keeps count and publishes each year a list of banks that disappear because they were bought or had to close. There is already one that will disappear in 2024, but the number of bankruptcies has remained limited for several years, far from the massacre of 2008 and 2009 caused by the financial crisis. subprime1.

Problems on the horizon

The FDIC also tracks the evolution of subprime banks, whose number increased from 39 to 52 between 2022 and 2023. This represents only 1.1% of all banks in operation, but it is the highest number since 2021. These 52 banks hold US 66 billion.

FDIC Chairman Martin Gruenberg expects the number of distressed banks to increase, he said recently.

After surprising everyone with its strength, the U.S. economy is seriously slowing and concerns are growing about commercial real estate lending. Lower interest rates will force banks to pay more to hold their deposits, which will reduce their profitability. Banks already weakened by the economic situation are at greater risk.

An analyst from the firm Nomura in the United States, Greg Hertrich, predicts that around fifty banks could disappear over the coming months with the anticipated shift in American monetary policy. Banks will either be bought or closed by the banking police.

Over time, the number of banks should continue to decline because there are simply too many, he said, and go from 4,500 to around 2,500, which would be more suited to the American market.

1. Check the list of defunct banks (in English)



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