FDIC Quarterly 33 2014, Volume 8, No. 2

through this lens, consolidation has had a much less 

pronounced effect on the community banking sector. 

More than 90 percent of FDIC-insured institutions 

operate as community banks, a share that has steadily 

increased since the mid-1980s. Moreover, the rate of 

total attrition through failure or merger has been far 

lower among community banks than among noncommunity banks since 1985—a disparity that has become 

even more pronounced over the past decade. When 

community banks do fail or close voluntarily, almost 

two-thirds of the time the acquirer is another community bank. So while today’s community banks may be 

somewhat larger, on average, than those of 30 years ago, 

they continue to meet the definition of institutions 

providing traditional banking services to their local 

markets.

These conclusions are somewhat at odds with the often 

expressed view that the post-crisis period will be characterized by heightened consolidation, which will 

increasingly marginalize the community banking sector. 

Our analysis shows that the projected decline of the 

community banking sector has been significantly overstated. Community banks have, in fact, remained 

highly resilient amid the long-term trend of banking 

industry consolidation. While their share of industry 

assets has declined over time, they are disproportionately important providers of credit to small businesses 

and serve hundreds of counties and thousands of 

communities that are overlooked by larger noncommunity institutions. While the overall trend of consolidation may well continue, it appears unlikely to diminish 

the importance of community banks or the role they 

play in our financial system.

A Closer Look at the Process of Consolidation

Before specifically evaluating the effects of consolidation on community banks, it may be useful to examine 

the process of consolidation itself. Consolidation is by 

no means a new development; in fact, it has been a 

defining trend in the U.S. banking industry since 

around 1980. After remaining fairly steady for more 

than three decades, the total number of banking and 

thrift charters declined from around 20,000 in 1980 to 

6,812 at the end of 2013 (Chart 1). While the top-line 

figures in Chart 1 appear to depict a disappearance of 

banking charters over time, it is more useful to consider 

this trend in terms of the three main components of 

structural change in banking.

Analysts agree that consolidation is a long-term trend 

that has significantly reshaped the banking industry 

over the past 30 years.1 There has recently been 

renewed debate as to the future pace of industry consolidation and what implications this trend holds for 

community banks. This paper presents an analysis of 

long-term consolidation and its effects on community 

banks. We conclude that the recent uptick in the rate 

of consolidation is attributable to factors that are likely 

to subside once the effects of the crisis are fully behind 

us. We also find that consolidation has had much less 

impact on the community banking sector than is 

commonly believed.

The key finding of this study is that institutions with 

assets between $100 million and $10 billion—most of 

which can be considered community banks—have 

increased in both number and in total assets since 

1985. The number of banks with assets between 

$100 million and $1 billion increased by 7 percent 

between 1985 and 2013, while the number of banks 

with assets between $1 billion and $10 billion 

increased by 5 percent. These groups of institutions 

also experienced growth in terms of total assets. The 

assets of banks between $100 million and $1 billion 

increased by 27 percent between 1985 and 2013, while 

the assets of banks between $1 billion and $10 billion 

grew by 4 percent.

Consolidation has had its biggest net effect on the very 

smallest and the largest banks. The number of institutions with assets less than $100 million declined by 

85 percent between 1985 and 2013. Meanwhile, institutions with assets greater than $10 billion have seen 

their number almost triple, while their total assets have 

increased more than ten-fold.

Because of the limitations of applying fixed asset-size 

thresholds over such a long period of time, we also 

analyze the effects of consolidation using the functional 

definition of community banks that was introduced in 

the 2012 FDIC Community Banking Study.

2

 Seen 

1

 For a previous FDIC study of long-term consolidation in banking, see 

Jones and Critchfield (2004).

2

 The 2012 FDIC Study defined “community banks” in terms of 

balance-sheet characteristics that reflected a focus on lending and 

deposit-gathering activities, and on a limited geographic scope of 

operations. For more details, see: http://www.fdic.gov/regulations/

resources/cbi/report/CBSI-1.pdf.

Community Banks Remain Resilient Amid 

Industry Consolidation
FDIC Quarterly 34 2014, Volume 8, No. 2

1980s, depository institutions were subject to a range of 

geographic restrictions, interest rate ceilings, and other 

limitations that had been introduced in response to the 

banking crisis that accompanied the Great Depression. 

Around 1980, however, increasing disintermediation 

from traditional banks, and especially thrifts, prompted 

a series of legislative measures to enable depository 

institutions to more effectively compete with nonbank 

providers.3

These regulatory changes at the state and federal levels 

virtually eliminated the geographic restrictions on 

banking activities that applied to many states prior to 

1980. While only 16 states permitted unrestricted intrastate branching in 1984, by 1994 the number had risen 

to 40.4 Similarly, while 42 states restricted interstate 

combinations of banking charters in 1984, by 1994 only 

Hawaii retained this restriction.5 The Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal) 

introduced full interstate branching, which further 

facilitated the consolidation of charters within banking 

companies. It was in the immediate aftermath of this 

liberalization of geographic restrictions that the industry 

3

 The Depository Institutions Deregulation and Monetary Control Act of 

1980 (DIDMCA) and the Garn-St. Germain Depository Institutions Act 

of 1982 (Garn-St. Germain) lowered net worth requirements and 

expanded investment powers for savings institutions, eliminated the 

Regulation Q interest-rate ceilings on bank and thrift deposits, and 

increased federal deposit insurance coverage from $40,000 to 

$100,000. Also around this time, state usury laws that placed interestrate ceilings on consumer loans were being superseded by a 1978 

U.S. Supreme Court ruling that permitted banks to follow the usury 

ceiling in place in their home state. 

4

 Strahan (2002). The District of Columbia is not included in these 

state counts.

5

 Strahan (2002). 

Voluntary closures have slowed since 2001. The most 

important component of long-term consolidation in 

banking is the voluntary closure of bank charters, which 

has accounted for around 80 percent of the total attrition in charters that has taken place since 1985. Voluntary closures of charters occur through intra-company 

consolidation of commonly owned charters, inter-company 

mergers, and, occasionally, through self-liquidation. It is 

useful to think about intra-company consolidation as a 

means by which an existing bank holding company can 

rationalize its internal structure by combining charters. These consolidations reduce the number of charters, but have no effect on the total number of banking 

organizations. In contrast, inter-company mergers are a 

means by which banking organizations can expand their 

size and geographic reach by merging with or acquiring 

charters operating under separate ownership.

Chart 2 depicts the annual rate of voluntary attrition, 

and divides the period since 1985 into three distinct 

periods. These include two periods of relatively slow 

voluntary attrition—the first between 1986 and 1992 

when the annual voluntary attrition averaged 3.4 

percent, and the second between 2002 and 2013 when 

the annual rate averaged 3.3 percent. During these 19 

years of relatively slow voluntary attrition, the annual 

rate exceeded 4.5 percent in only one year. These periods 

were divided by a period of more rapid voluntary attrition between 1993 and 2001 when voluntary closings 

exceeded 4.5 percent of existing charters in every year.

The period of highest rates of voluntary attrition 

immediately followed a period of changes in federal 

and state law, during which geographic barriers to 

banking activities were significantly relaxed. Before the 

Annual Rates of Voluntary Attrition: 1986–2013

As a Percent of Charters Reporting at Previous Year-End

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Other Closings

Intra-Company Consolidation of

Charters

Voluntary Inter-Company Mergers

Source: FDIC.

Average:

1993–2001

(–5.4%)

Average:

1986–1992

(–3.4%)

Average:

2002–2013

(–3.3%)

Chart 2

Number of U.S. Banking and Thrift Institutions,

1934–2013

0

5,000

10,000

15,000

20,000

25,000

30,000

1934 1942 1950 1958 1966 1974 1982 1990 1998 2006

Source: 1934–83: FDIC Historical Statistics on Banking, Tables CB03 and SI01; Federal 

Home Loan Bank Board, Savings and Home Financing Sourcebook, 1987, pp. A1–A2. 

1984–2013: FDIC, Bank Call Reports and Thrift Financial Reports.

Number of Charters at Year-End

Commercial Bank and Savings Institution Charters, 

Estimated From Historical Records

Federally Insured Banks and Thrifts, 

Based on Bank Call Reports and 

Thrift Financial Reports

Chart 1
FDIC Quarterly 35 2014, Volume 8, No. 2

experienced its highest annual rates of voluntary 

consolidation. This relaxation of these geographic 

restrictions was conducive to both the consolidation of 

charters within existing organizations and the acquisition of charters operated under different ownership.6

However, in some sense this represents a one-time 

historical factor that by now, some 20 years or more 

after the fact, has diminished in importance as a driver 

of industry consolidation.

Failures rose during the recent crisis, but are now 

abating. The second most important factor contributing to consolidation since 1985 has been bank and thrift 

failures. Between 1985 and 2013, a total of 2,580 federally insured banks and thrifts failed. Failures have 

accounted for slightly less than 17 percent of all charter 

attrition since 1985. The vast majority of those failures 

have taken place within two concentrated waves: one 

during the 1980s and early 1990s, and the other beginning in 2008.

Chart 3 depicts annual percentage rates of failure for 

federally insured banks and thrifts. The chart divides the 

period since 1985 into distinct eras that coincide with 

two crisis periods. The annual rate of failure ranged 

between 0.3 percent and 3.2 percent in every year 

between 1986 and 1993, as the banking and thrift 

industries were experiencing credit losses associated with 

commercial real estate and construction lending and a 

series of regional economic downturns.7 After 1993, the 

6

 See Berger, Demsetz and Strahan (1999), p. 150.

7

 For a detailed analysis of the complex combination of causes that led 

to the extraordinary number of bank failures in the 1980s and early 

1990s, see FDIC (1997).

annual rate of failure never exceeded 0.1 percent in any 

year until 2008, when the industry experienced a second 

wave of failures associated with the recent financial 

crisis. The annual rate of failure once again equaled or 

exceeded 0.3 percent in every year between 2008 and 

2013, peaking in 2010 at 2 percent. In all, 97 percent of 

the failures that have taken place since 1985 have 

occurred during these two crisis periods.

While failures have been an important factor contributing to the banking industry consolidation since 1985, it 

is by no means assured that they will continue to 

contribute to consolidation to the same degree in the 

years ahead. Substantial reforms put in place since the 

recent crisis, including the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 2010 (DoddFrank) and the Basel III capital standards, are designed 

to contribute to a more stable banking environment in 

the years ahead. To the extent that bank risk managers 

and bank supervisors are successful in creating a more 

stable banking environment in the years ahead, failures 

may contribute much less to consolidation than they 

have since 1985.

New charters represent a highly cyclical component 

of consolidation. The other main component of 

consolidation is new banking charters. The rate at which 

new charters have been added to the industry has 

proven to be highly cyclical. Since year-end 1985, the 

industry has established new federally insured institutions at an average annual rate of 1.3 percent 

(Chart 4). The establishment of new institutions has 

been strongest during periods of economic expansion 

and strong financial performance on the part of the 

banking industry. The pace of chartering activity has 

undergone three distinct lulls that have occurred 

during and immediately after the recessions of 1990-91, 

2001, and 2008-09. The most recent crisis period has 

taken a particularly severe toll on the pace of chartering activity. Only 15 new charters were established 

between the end of 2009 and the end of 2013. The 

highly cyclical nature of chartering activity suggests 

that, in the wake of the worst financial crisis since the 

Great Depression, a significant drop-off in chartering 

activity should not have been wholly unexpected.

If the experience of the last banking crisis is any guide, 

chartering activity can be expected to recover over the 

next few years as the effects of the crisis recede. As 

depicted in Chart 4, the lowest levels of industry-wide 

chartering activity before 2008 were registered in 1993 

and 1994, when new charters amounted to fewer than 

Community Banks Remain Resilient Amid Industry Consolidation

Annual Rates of Failure: 1986–2013

As a Percent of Charters Reporting at Previous Year-End

Source: FDIC.

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Average:

1986–1993

(–1.6%)

Average:

2008–2013

(–1.0%)

Average:

1994–2007

(–0.05%)

Chart 3
FDIC Quarterly 36 2014, Volume 8, No. 2

It is important not to misread the net decline in the 

number of small charters as an indicator of their relative 

success or longevity. Among charters operating at the 

end of 1985, the rates of failure, voluntary closure, and 

overall attrition through year-end 2013 were lower for 

institutions that started out with assets less than $100 

million than for those in any other size group (Chart 6). 

Equivalently, the proportion of institutions starting out 

with less than $100 million in assets in 1985 that were 

still operating in 2013 was greater than that of any 

other size group.8

The second way that consolidation has reshaped the 

size distribution of the banking industry is by generating 

tremendous growth in the size and share of industry 

assets held by the largest banking companies. The share 

of industry assets held by the top 10 banking organizations rose from 19 percent as late as 1990 to 56 percent 

at the end of 2013. In all, the total assets of institutions 

with assets greater than $10 billion grew from $1.1 trillion (28 percent of industry assets) in 1985 to $11.9 

trillion (81 percent of industry assets) in 2013 

(Chart 7).

Institutions with assets between $100 million and 

$10 billion have increased in number and total assets. 

Somewhat overlooked amid these large changes at 

either end of the size distribution is the relative stability 

8

 The reason institutions in this smallest size group could experience 

the lowest rate of attrition and yet see their numbers decline the most 

in percentage terms was that so many of them managed to grow into 

one of the larger size categories. In all, some 2,777 of the institutions 

that started out in 1985 with assets less than $100 million were still 

reporting at year-end 2013 in one of the larger size categories. In fact, 

12 of them reported total assets of more than $10 billion in 2013.

0.5 percent of existing institutions. By 1999, however, 

the pace of chartering activity had risen to 2.6 

percent—the fastest of any year since 1985 and twice 

the annual average for the past 28 years. There are 

certainly reasons to think that chartering activity in 

this cycle might not recover as quickly or to the same 

degree in this recovery. However, to the extent that the 

pace of chartering activity does increase, we can expect 

the rate of net consolidation to slow in coming years.

Effects of Consolidation on the Size Distribution 

of Banks

Consolidation has mainly affected the smallest and the 

largest institutions. Consolidation since 1985 has had 

two main effects on the size distribution of the banking 

industry. It has dramatically reduced the number of 

institutions with assets less than $100 million, while 

greatly increasing the size and share of assets held by the 

largest institutions. Notably however, consolidation has 

had much less effect on institutions operating in the size 

categories between $100 million and $10 billion, which 

currently encompass most community banks.

All of the net reduction in the number of bank and 

thrift charters between 1985 and 2013 can be 

accounted for by the decline in the number of institutions with assets less than $100 million, which fell by 

85 percent over this period (Chart 5). The number of 

institutions with assets less than $25 million declined 

by 96 percent during this period, from 5,717 to just 

205. While the number of institutions with assets 

between $25 million and $100 million also declined by 

77 percent during this period, some 1,851 institutions 

continued to operate in this size category in 2013.

All Net Consolidation in Charters Since 1985

Has Occurred Among Banks With Assets

Less Than $100 Million

Number of Federally Insured Banks and Thrift Institutions

Source: FDIC.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1985 1989 1993 1997 2001 2005 2009 2013

<$100M

$100M-$1B

$1B-$10B

>$10B

Asset Size Group

Percent Change,

1985–2013

–85%

+7%

+5%

+197%

Chart 5

Annual Rates of New Chartering Activity: 1986–2013

New Charters Established During Year as a Percent of 

Existing Charters at Previous Year-End 

Source: FDIC.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

1986–2013

Average:

1.3%

Chart 4
FDIC Quarterly 37 2014, Volume 8, No. 2

banking and the extent to which the presence of economies of scale may have induced mergers and acquisitions that contributed to banking industry 

consolidation over time.11 While the magnitude of 

economies of scale among community banks was found 

to vary according to lending specialization, most of the 

cost benefits from scale appear to be achieved for 

community banks with as little as $100 million in assets 

(Charts 8 and 9). What this implies is that while economies of scale may help to explain the large declines 

that have occurred over time in the number of banks 

with assets less than $100 million, they do not appear 

to have had nearly the same effect on banks bigger 

than $100 million. As such, economies of scale do not 

appear to be working against the majority of community banks.

Community Banks Have Been Highly Resilient 

Amid Consolidation

By focusing strictly on size group definitions, the previous discussion provides only a limited account of the 

effect of consolidation on community banks. In part, 

these shifts in the asset size distribution reflect the limitations of relying on fixed asset-size categories, as any 

yardstick measured in nominal dollars is likely to shrink 

over such a long period of time.12 A more robust analysis of how consolidation affects community banks 

requires a functional definition of the community bank 

that is not strictly based on asset size. This is precisely 

11 Jacewitz and Kupiec (2012).

12 Between 1985 and 2013 the consumer price index increased by 2.2 

times, the total assets held by federally insured banks and thrifts rose 

by 2.7 times, and the nominal size of U.S. Gross Domestic Product 

(GDP) rose by 3.9 times.

that has been observed among banks between $100 

million and $10 billion in assets. As depicted in 

Chart 5, the number of banks with assets between 

$100 million and $1 billion increased by 7 percent 

between 1985 and 2013, while the number of banks 

with assets between $1 billion and $10 billion increased 

by 5 percent. These groups of institutions also experienced growth in terms of total assets. The assets of 

banks between $100 million and $1 billion increased by 

27 percent between 1985 and 2013, while banks with 

assets between $1 billion and $10 billion grew by 

4 percent (Chart 7).

One reason why this stability in the $100 million to 

$10 billion size category is so important for this study is 

that it is in these size groups where most community 

banks currently operate. At year-end 2013, some 68 

percent of community bank charters held assets 

between $100 million and $10 billion.9 Another reason 

not to overlook the relative stability of these institutions is the research that has recently been done on 

economies of scale in banking.10 A recent FDIC study 

explored the issue of economies of scale in community 

9

 The term “community bank” here refers to institutions meeting the 

definition established in the 2012 FDIC Community Banking Study. 10 The term economies of scale refers to the relationship between the 

cost of producing a unit of output and the level of output. To the 

extent that average costs fall with the level of output, then a firm can 

be said to experience economies of scale. The existence of economies 

of scale is important to understanding consolidation in banking. To the 

extent that they exist, economies of scale can render smaller institutions uncompetitive, making them more likely to exit the industry over 

time. Improved operational efficiency has been posited as one of three 

main motivations behind bank mergers, with the other two being 

increased market power and increased access to the regulatory safety 

net. See Berger, Demsetz and Strahan (1999).

Community Banks Remain Resilient Amid Industry Consolidation

Rates of Long-Term Attrition by Size Class, 1985–2013

Percent of Institutions Reporting at Year-End 1985

Failed

11%

Failed

15%

Failed

22% Failed

11%

Voluntarily

Merged or

Consolidated

56%

Voluntarily

Merged or

Consolidated

68%

Voluntarily

Merged or

Consolidated

68%

Voluntarily

Merged or

Consolidated

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<$100M $100M-$1B $1B-$10B >$10B

Source: FDIC.

 Attrition Rate:

67%

Attrition Rate:

83%

Attrition Rate:

90% Attrition Rate:

81%

Year-End 1985 Assets

Chart 6

Only the Smallest Institutions Have Seen an

Aggregate Decline in Total Assets Since 1985 

Total Assets of Institutions in Size Group, Dollars in Trillions

< $100 Mil.

$100 Mil. - $1 Bil.

$1 Bil. - $10 Bil.

> $10 Bil.

Percent

Change in Assets,

1985–2013

–76%

+27%

+4%

+972%

Asset Size Group

$0

$2

$4

$6

$8

$10

$12

$14

$16

1985 1989 1993 1997 2001 2005 2009 2013

Source: FDIC.

Chart 7
FDIC Quarterly 38 2014, Volume 8, No. 2

using year-end 2012 data resulted in the identification 

of 6,544 community banking charters operating within 

6,141 community banking organizations.14 Based on 

this more robust definition, we are better able to 

analyze the effects of consolidation on institutions 

engaged in community banking, as opposed to institutions operating within arbitrary, fixed asset-size 

thresholds.

The vast majority of FDIC-insured institutions operate as community banks. The most obvious indicator 

of the resilience of community banks in the face of 

industry consolidation is the fact that some 93 percent 

of FDIC-insured banking charters met the community 

bank definition at year-end 2013, up from 87 percent at 

the end of 1985 (Chart 10). While the total number of 

federally insured institutions declined by 62 percent 

over this period, the decline among noncommunity 

banks (78 percent) was actually greater than that 

among community banks (60 percent).

Notwithstanding the relative stability in the community bank share of banking charters, the community 

bank shares of offices and assets have steadily declined 

since 1985. As a share of total banking offices, community banks have experienced a gradually declining share 

over time, from 53 percent in 1985 to 35 percent in 

2013 (Chart 11). In large part, this trend reflects the 

large increases in geographic scope seen among 

14 The community bank analysis conducted in this paper generally 

follows the convention established in FDIC (2012) and Backup (2013) 

of defining community banks as of the end of each calendar year. The 

exception in this paper is our analysis of calendar-year 2013, which is 

based on community bank definitions as of year-end 2012.

the type of definition that was introduced in the 2012 

FDIC Community Banking Study.

While they are frequently thought of strictly in terms of 

asset size, community banks are more accurately 

described in terms of how and where they conduct business. Community banks tend to focus on providing 

essential banking services in their local communities. 

They obtain most of their core deposits locally and 

make many of their loans to local businesses. For this 

reason, they are often considered to be “relationship” 

bankers as opposed to “transactional” bankers. This 

means that they have specialized knowledge of their 

local community and their customers. Because of this 

expertise, community banks tend to base credit decisions on local knowledge and nonstandard data 

obtained through long-term relationships and are less 

likely to rely on the models-based underwriting used by 

larger banks.

The 2012 FDIC Study incorporated a number of these 

considerations into a new research definition of the 

community bank based on publicly available data that 

describe banking activities and the institution’s 

geographic scope of operations.13 Because this definition is not strictly based on a fixed asset-size threshold, 

it does not automatically “define away” community 

banks as smaller institutions grow, merge, or acquire 

other banks. An implementation of this definition 

13 Appendix A of the 2012 FDIC Study details the implantation of this 

definition using publicly available data. See: http://www.fdic.gov/

regulations/resources/cbi/report/CBSI-A.pdf. Listings of FDIC-insured 

institutions according to whether they meet this definition are provided 

on the FDIC website at: http://www.fdic.gov/regulations/resources/cbi/

data.html

For Some Community Bank Lending Specialties,

Economies of Scale Are Realized at

Very Small Asset Sizes

Estimated Average Costs as a Function of Asset Size, 

FDIC-Insured Community Banks

$10,000,000 $100,000,000 $1,000,000,000 $10,000,000,000

Estimate

95% Confidence

Agricultural Lending Specialists, 2006

Total Assets

Source: Jacewitz and Kupiec (2012).

3%

4%

5%

6%

7%

8%

9%

10%

Chart 9

Most Economies of Scale for Community Banks Are

Realized at an Asset Size of Around $100 Million

Estimated Average Costs as a Function of Asset Size, 

FDIC-Insured Community Banks

3%

4%

5%

6%

7%

8%

9%

10%

$10,000,000 $100,000,000 $1,000,000,000 $10,000,000,000

Estimate

95% Confidence

CRE Lending Specialists, 2006

Total Assets

Source: Jacewitz and Kupiec (2012).

Chart 8
FDIC Quarterly 39 2014, Volume 8, No. 2

The rate of long-term charter attrition has been far 

lower for community banks than for noncommunity 

banks—particularly over the past decade. As 

described earlier in the case of banks with assets under 

$100 million, simply tracking the net number of institutions in a group over time does not necessarily 

provide the clearest picture of their relative success or 

longevity. It is also instructive to look to their rate of 

total attrition over time as a measure of their long-term 

staying power. Among institutions operating at yearend 1985, some 68 percent of the community banks 

had failed, merged or otherwise consolidated by 2013, 

compared to 94 percent of noncommunity banks 

(Chart 13). This disparity in rates of total attrition is 

even more startling when measured during the period 

of relatively slow voluntary attrition since 2003. 

Between year-end 2003 and year-end 2013, the total 

noncommunity banks over this period. The average 

number of offices operated by noncommunity banking 

organizations grew from 83 offices in 1985 to 154 

offices in 2013, while the average number of offices 

operated by community banking organizations grew 

from 3 to 6.

The community bank share of banking industry assets 

also underwent a secular decline over this period 

(Chart 12). While community banks held 37 percent 

of industry assets in 1985, their share declined to just 

14 percent by 2013. However, most of the gain in the 

share of industry assets held by noncommunity banks 

was concentrated in just a handful of institutions. 

Excluding the ten largest banking organizations, the 

community bank share of industry assets would have 

been 45 percent in 1985 and 31 percent in 2013.

Community Banks Remain Resilient Amid Industry Consolidation

FDIC-Insured Community Banks and Noncommunity Banks, 1985–2013 

Banking Charters

Number of Federally Insured Banking Charters

Source: FDIC.

Percent of Federally Insured Banking Charters

1985 1989 1993 1997 2001 2005 2009 2013 1985 1989 1993 1997 2001 2005 2009 2013

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Noncommunity Banks

Community Banks

Chart 10

FDIC-Insured Community Banks and Noncommunity Banks, 1985–2013 

Banking Ofces

Number of Offices

Source: FDIC.

Percent of Industry Offices

1985 1989 1993 1997 2001 2005 2009 2013 1985 1989 1993 1997 2001 2005 2009 2013

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% Noncommunity Banks

Community Banks

0

20,000

40,000

60,000

80,000

100,000

120,000

Chart 11
FDIC Quarterly 40 2014, Volume 8, No. 2

institutions. While this could be interpreted as a net 

loss to the community banking sector, this would not 

necessarily be the case if the acquirer were also a 

community bank. In that event, the resulting institution would likely continue to carry out traditional lending and deposit gathering activities within a fairly 

limited geographic area, with relatively little impact on 

the nature of banking services provided to the customers of the bank or the communities it serves.

Analysis of the 2,579 community bank charters that 

were acquired between year-end 2003 and year-end 

2013 shows that 65 percent were acquired by other 

community banks (Chart 14). Among community 

banks with assets less than $100 million, the share 

acquired by other community banks was 85 percent, 

and among those with assets between $100 million and 

attrition rate for community banks was 29 percent, 

compared to 61 percent for noncommunity banks. The 

failure rate was identical for the two groups, rounding 

to 5 percent.

Despite the perception that community banks are losing 

their place in the banking industry as a result of consolidation, the data show that over the past decade they 

have failed just as often as noncommunity banks, while 

their rate of total attrition was less than half that of 

noncommunity banks.

When community banks are closed through failure or 

voluntary merger, nearly two-thirds of the time the 

acquirer is another community bank. The attrition of 

charters over the past decade, depicted on the right 

hand side of Chart 13, resulted in the acquisition of 

over 2,500 community bank charters by other 

FDIC-Insured Community Banks and Noncommunity Banks, 1985–2013 

Total Assets

Assets in Trillions of Dollars

Source: FDIC.

Percent of Industry Assets

1985 1989 1993 1997 2001 2005 2009 2013 1985 1989 1993 1997 2001 2005 2009 2013

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Noncommunity Banks

Community Banks

$0

$2

$4

$6

$8

$10

$12

$14

$16

Chart 12

Attrition Rates of Community and Noncommunity Banks

Source: FDIC.

Failed -12% Failed -9%

Voluntarily

Merged or

Consolidated

-55%

Voluntarily

Merged or

Consolidated

-86%

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0% Community Banks Noncommunity Banks

Attrition Rate:

68%

Attrition Rate:

94%

Percent of Institutions Reporting Year-End 1985

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0% Community Banks Noncommunity Banks

Percent of Institutions Reporting Year-End 2003

1985–2013 2003–2013

Failed -5% Failed -5%

Voluntarily Merged

or Consolidated

-25% Voluntarily

Merged or

Consolidated

-56%

Attrition Rate:

29%

Attrition Rate:

61%

Chart 13
FDIC Quarterly 41 2014, Volume 8, No. 2

The net result of community bank attrition and acquisitions over the past decade is depicted in Chart 15. 

The chart compares the percent of 2003 community 

banks, in three size classes, that either continued to 

report as community banks in 2013 or that had been 

acquired by another community bank sometime during 

the decade. Ninety-four percent of the community 

banks that started out in 2003 with assets less than 

$100 million either continued to report as a community bank in 2013 or had been acquired by another 

community bank sometime during the decade. For 

community banks that started out with assets between 

$100 million and $1 billion, the share was 84 percent. 

By contrast, fewer than 50 percent of community 

banks that started out with assets between $1 billion 

and $10 billion continued to operate as community 

banks at the end of the decade.

These results suggest a significant degree of underlying stability in the structure of the community banking sector overall, and especially among the smaller 

size classes of community banks. While attrition has 

led to consolidation among these institutions over 

the past decade, the vast majority have remained 

part of the community banking sector. It is in the 

largest size class of community banks—those with 

assets over $1 billion—that we see more institutions 

leaving the community banking sector either by 

changing their business model (and thereby no 

longer meeting the community bank definition) or 

by being acquired by a noncommunity bank. For 

perspective, it is useful to note that fewer than 5 

percent of community banks held assets greater than 

$1 billion at year-end 2013.

$1 billion, the share acquired by community banks was 

56 percent.15

There may be two reasons why the percentage of 

community banks acquired by other community banks 

declines as asset size increases. One is that in most 

mergers the substantially larger institution acquires the 

smaller institution. Of the 1,668 community bank charters acquired as part of voluntary inter-company mergers between year-end 2003 and year-end 2013, the 

acquiring banking organization was larger than the 

target organization in 83 percent of the cases. This 

means that the ranks of potential community bank 

acquirers diminish rather quickly as the size of a potential merger target increases. While 62 percent of institutions with assets between $1 billion and $10 billion met 

the community bank definition at year-end 2013, only 

2 percent of banks over $10 billion did so.

In addition, small community banks have proven to be 

far more likely than larger institutions to be acquired 

through voluntary transactions. Of community banks 

acquired between 2003 and 2013, only 9 percent of 

those with assets less than $100 million were failed 

institutions, compared to 21 percent of banks with 

assets between $100 million and $1 billion and 23 

percent of those with assets between $1 billion and 

$10 billion. A higher share of “forced sales” among 

these larger acquisition targets may reduce the odds of 

finding a suitable community bank acquirer at the time 

of failure.

15 Only 158 (6 percent) of the 2,579 community banks that were 

acquired between 2003 and 2013 held total assets of more than 

$1 billion at the time of acquisition.

Community Banks Remain Resilient Amid Industry Consolidation

Small Community Banks Have Been Overwhelmingly

Acquired by Other Community Banks Since 2003 

Source: FDIC.

85%

56%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<$100M $100M-$1B $1B-$10B

Percent of Closed Community Bank Charters Acquired by Other Community Banks

Assets of Closed Community Bank

All Closed

Community Banks

2003–2013:

65%

Chart 14

Share of 2003 Community Banks Still Under

Community Bank Control in 2013

Source: FDIC.

<$100M $100M-$1B $1B-$10B

Percent of 2003 Community Bank Charters

Year-End 2003 Assets

71% 69%

45%

23%

15%

2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% Acquired by Community Banks

Still Operating as Community 

Banks

Total 94%

Total 84%

Total 48%

Status as of Year-End 2013:

2%

Chart 15
FDIC Quarterly 42 2014, Volume 8, No. 2

As defined in the 2012 FDIC Study, community banks 

are vitally important sources of small loans to U.S. 

farms and businesses and as providers of mainstream 

banking services to rural communities, small towns, and 

urban neighborhoods that are frequently overlooked by 

larger banks. At year-end 2012, community banks held 

just 14 percent of banking industry assets, but held 46 

percent of the industry’s small loans to farms and businesses.17 While they held just 18 percent of banking 

industry deposits in 2012, they held the majority of 

deposits in banking offices located in both rural counties and micropolitan counties. In addition, there are 

more than 600 U.S. counties (almost one fifth of all 

U.S. counties) that would not have had any physical 

banking offices operated by FDIC-insured institutions if 

not for those operated by community banks.

Conclusion

The post-crisis period has brought renewed debate as to 

the future pace of banking industry consolidation and 

the possible implications for community banks. Despite 

the concerns of some that a period of heightened 

consolidation could diminish the prospects of community banks, there are several reasons to think that these 

concerns may be significantly overstated.

Consolidation is by no means a recent development. 

Instead, it is a long-term trend that has been reshaping 

the banking industry since around 1980. About 80 

percent of the charter attrition that has been observed 

since 1985 has taken the form of voluntary closings, 

mainly consolidations within holding companies or 

voluntary mergers between banking organizations. The 

period when the pace of voluntary consolidation was 

most rapid was between 1993 and 2001, shortly after 

geographic restrictions on banking activities were 

virtually eliminated. To the extent that these one-time 

regulatory changes took place 20 years or more in the 

past, their impact on future consolidation is likely to 

be limited.

Another 20 percent of charter attrition since 1985 has 

taken place through bank failures, mainly during the 

crisis periods of the late 1980s and early 1990s and since 

2007. To the extent that regulatory reforms, prudential 

supervision and bank risk management can ward off a 

repeat of these episodes, failures also figure to contribute less to charter attrition going forward.

17 These year-end 2012 calculations for community banks are found in 

Backup (2013).

Compared to the mid-1980s, today’s community 

banking sector is composed of somewhat larger institutions that continue to provide essential banking 

services to a limited geographic market. We have 

shown that community banks have experienced relatively low rates of attrition and, when they do exit the 

industry, are usually acquired by other community 

banks. After nearly 30 years of industry consolidation, 

the median community bank in 2013 had grown to 

$167 million, more than four times the median size in 

1985 (Chart 16). 

This increase in the median size of community banks is 

consistent with both the large declines that have been 

observed in the number of very small charters (especially those with assets less than $25 million) and the 

existence of economies of scale at these very small asset 

sizes. It does not comport with claims that only community banks with assets of $1 billion or more could be 

considered viable.16 In fact, almost 90 percent of 

community banks operating at the end of 2013 held 

total assets of less than $730 million.

Many of today’s community banks have survived two 

episodes of bank failures and a long-term process of 

consolidation that has reduced their total number by 

around one-half. What they do have in common with 

community banks from previous eras is a focus on 

providing essential banking services in their local 

communities. Amid the changes associated with consolidation, community banks continue to serve this core 

function in our economy much as they always have.

16 See “Small Banks Look to Sell as Rules Bite,” Wall Street Journal, 

April 3, 2014, p. C-1.

Community Banks Have Grown Somewhat Larger

Over Time, in Part as a Result of Consolidation

Asset Distribution of Community Banking Organizations

Dollars in Millions

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

1985 1990 1995 2000 2005 2010

90th Percentile

Median

10th Percentile $45 million

$167 million

$731 million

Source: FDIC.

$40 million

$205 million

1985 2013

$11 million

90th Percentile

Median

10th Percentile

Chart 16
FDIC Quarterly 43 2014, Volume 8, No. 2

The net result is a community banking sector made up 

of institutions that tend to be somewhat larger than 

was the case in 1985, but that otherwise continue, as 

before, to make loans and take deposits within a fairly 

limited geographic area. After more than 30 years of 

industry consolidation, community banks still serve as 

vital sources of credit for small businesses and providers of banking services to communities that might not 

be served by noncommunity banks. The available 

evidence strongly suggests that they will continue 

to carry out these important functions for the 

foreseeable future.

Authors: Benjamin R. Backup, Economic Analyst

Division of Insurance and Research

Richard A. Brown, Chief Economist

Division of Insurance and Research

References

Backup, Benjamin R. “Community Bank Developments in 

2012,” FDIC Quarterly, 7 (4), 2013. http://www.fdic.gov/

bank/analytical/quarterly/2013_vol7_4/article.pdf.

Berger, Allen N., Rebecca S. Demsetz and Philip E. Strahan. 

“The Consolidation of the Financial Services Industry: 

Causes, Consequences and Implications for the Future,” 

Journal of Banking and Finance 23 (2), 1999.

Federal Deposit Insurance Corporation, History of the 

Eighties—Lessons for the Future, December 1997. http://

www.fdic.gov/bank/historical/history/.

Federal Deposit Insurance Corporation, FDIC Community 

Banking Study, December 2012. http://www.fdic.gov/

regulations/resources/cbi/study.html.

Jacewitz, Stefan and Paul Kupiec. “Community Bank 

Efficiency and Economies of Scale,” FDIC Special Study, 

December 2012. http://www.fdic.gov/regulations/resources/

cbi/report/cbi-eff.pdf.

Jones, Kenneth D. and Tim Critchfield. “Consolidation in the 

U.S. Banking Industry: Is the ‘Long Strange Trip’ About to 

End?” Federal Deposit Insurance Corporation, The Future of 

Banking in America, 2004. http://www.fdic.gov/bank/

analytical/banking/2006jan/article2/article2.pdf.

Philip E. Strahan. “The Real Effects of U.S. Banking 

Deregulation.” Wharton Financial Institutions Center 

Working Paper 02-39, 2002. http://fic.wharton.upenn.edu/

fic/papers/02/0239.pdf.

New chartering activity has brought new resources into 

the banking sector over time, replenishing the number 

of charters amid ongoing attrition. Chartering has 

proven to be highly cyclical over time, and never more 

so than during and after the recent crisis. If the experience of the last banking crisis is any guide, chartering 

activity can be expected to recover over the next few 

years as the effects of the crisis recede. To the extent 

that this turns out to be the case, we can expect the 

rate of net consolidation to slow in coming years.

Much attention has been focused on the effects that 

consolidation has had on the smallest and the largest 

institutions. While all of the net reduction in the 

number of banking charters can be explained by the 

decline in the number of banks with assets less than 

$100 million, the largest institutions have seen tremendous increases in their size and share of industry assets. 

Too often overlooked is the relative stability among 

institutions with assets between $100 million and 

$10 billion, which have seen their number and their 

total assets grow amid industry consolidation since 

1985. The disparity between the decline in very small 

charters and growth among charters between $100 

million and $10 billion suggests that economies of scale 

offer only a limited explanation for consolidation, and 

that community banks have been much less affected by 

consolidation than is commonly thought to be the case.

Conducting analysis using the FDIC’s functional definition of the community bank further demonstrates the 

resilience of community banks in the face of long-term 

consolidation. After more than 30 years of industry 

consolidation, well more than 90 percent of banking 

charters met the FDIC’s community bank definition at 

the end of 2013. Second, the rate of long-term charter 

attrition has been far lower for community banks than 

for noncommunity banks, particularly over the past 

decade. In addition, when community banks are closed 

through failure or voluntary merger, almost two-thirds 

of the time the acquirer has been another community 

bank. In these cases, the nature of banking services 

provided to the customers and communities served by 

these institutions can be expected to remain relatively 

unaffected by consolidation.

Community Banks Remain Resilient Amid Industry Consolidation