Small banks — those having less than $1 billion in assets — account for 97 percent of all banks in the United States, but only about 33 percent of banking assets. These small banks are subject to many disadvantages compared with their bigger brethren, who can have more diversified portfolios, make larger loans, benefit from economies of scale in check processing and other automation technology, offer wider brank networks and more diverse services to their customers, and acquire capital more easily on public markets. As a consequence, it's often projected that small banks will disappear rapidly somewhere in the not-to-distant future.

That future in which larger banks monopolize the U.S. banking system has not arrived and it appears little, if any, closer than in the past. While the number of small banks has fallen by 1000 or so in the past 30 years, there are still many of them. Why haven't small banks disappeared as so many have predicted?

This article appeared in the November/December 1994 edition of Business Review.

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