VALUE: After Hours (S08 E08): Why the U.S. Has Thousands of Banks

During their recent episode, Taylor, Carlisle, and Derek Pilecki discussed Why the U.S. Has Thousands of Banks. Here’s an excerpt from the episode:

[Derek] Yeah, I think it’s a artefact of the interstate branching laws. Like you couldn’t open up banks across state lines and even in like in Texas, you couldn’t open up a bank branch across county lines. And so every little geography had its own bank.

And so, you know, those interstate branching laws were taken down in the, during the nineties. And that’s when we really started seeing consolidation. So it’s just, that’s the artefact of, you know, they were pretty, every state protected their banks from getting acquired by other states banks.

[Jake] And that trend line is just down into the right, right. The numbers like this consolidation wave, do you think it’s just going to keep going?

[Derek] It will, you know, we, we’re not going to be as consolidated as Canada or Australia. You know, we’re not going to get down to five banks, but we’re at 4,000 banks, you know, we’ll get to 400 banks or something that, you know, it was 13,000 when I, the year I graduated from college. So we’re from 13,000 to 4,030 years, 35 years.

So, you know, we’re trend lines down.

[Jake] What does that mean for our manifestment perspective then?

[Derek] You know, it’s hard. I don’t think we’re in an M&A environment where there’s a lot of excess returns from M&A. Like it’s not 1996 where we have Nations Bank and First Union overpaying for banks to get market share.

Like the, you know, the market’s been very disciplined. If an acquirer overpays for a bank, they’re in the penalty box. So, you know, I feel like, I feel like bank acquirers are pretty, pretty stingy with what they’re willing to pay.

So like, if you’re going to invest in banks, just because of M&A, you end up owning a lot of mediocre franchises for a pop at some time. So I prefer to invest in the banks that are more organic growers or, or after looking at what their acquisitions have been, if they’ve made particularly good acquisitions, like a First Citizens, you know, when they bought Silicon Valley, like that’s a, that’s an opportunity to participate in M&A. But I don’t think it’s really great to just sit around in a bunch of mediocre banks and wait for them to get taken out.

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VALUE: After Hours (S08 E08): Why the U.S. Has Thousands of Banks

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