Commercial Banks

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 5,001 commercial banks in the US earn money by lending money at higher interest rates than the interest they pay to depositors. They may also earn money from fees and interest on credit card services, returns on investments in securities, fees for investment services, fees for treasury management services, and other account fees.

Burden of Regulatory Compliance Costs

The banking industry is highly regulated and regulations increased significantly following the financial crisis of 2008.

Fintech Competition Forces Innovation

Banks are seeing new competition from fintech start-ups, which have received tens of billions of dollars in venture capital funding over the past five years.

Industry size & Structure

The average commercial bank has 276 employees and generates $107 million in annual revenue.

    • There are 5,001 FDIC-insured commercial banks in the US. FDIC-insured banks have over 1.3 million employees, $500 billion in annual revenue and almost $22 trillion in assets.
    • There are about 4,560 FDIC-insured community banks that serve local markets and typically have less than $1 billion in assets. These community banks have over 392,700 employees and $2.5 trillion in assets.
    • There are 776 FDIC-insured commercial banks with $1 billion to $10 billion in assets.
    • There are 138 FDIC-insured commercial banks with $10 billion to $250 billion in assets.
    • There are 13 FDIC-insured commercial banks with over $250 billion in assets. These banks are defined as systemically important financial institutions (SIFI) under the revisions to the Dodd-Frank Act and are subject to more stringent regulation.
    • The largest US commercial banks by assets are JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, US Bancorp, TD Group US Holdings, and PNC Financial Services Group.
                                  Industry Forecast
                                  Commercial Banks Industry Growth
                                  Source: Vertical IQ and Inforum

                                  Recent Developments

                                  Nov 2, 2022 - Auto Loan Losses Increase
                                  • Lenders including Wells Fargo are reporting higher loss rates for auto loans. Ally Financial, the country’s second-largest auto lender, saw four times as many charge-offs for retail auto loans in the third quarter of 2022, according to Bloomberg, and Wells Fargo reported higher loss rates for loans it originated in late 2021. Fifth Third Bancorp is pulling back on auto loan originations and reports that more consumers with unfavorable credit scores have been negotiating lenders down to keep their vehicles.
                                  • Industry experts note that falling used car prices combined with rising loan interest rates may increase auto loan losses. Consumers who end up owing more than their cars are worth might stop making payments altogether, according to Chris Gardner, CEO of Vamos Auto, an integrated finance company specializing in the subprime car market. “As these loans default and these lenders take [the cars] back in, they’re receiving less when they go to sell that car,” Gardner said.
                                  • The Federal Reserve’s attempt to fight inflation by raising interest rates has had little impact on savings accounts. Mortgage rates doubled in 2022 to nearly 7%, and it has become more expensive to get a car loan or carry a credit-card balance, but the interest on savings accounts has barely moved. The average annual yield on a standard savings account was 0.1% in March 2020, according to Bankrate.com. It fell to a pandemic low of 0.06% after Americans’ personal saving rate peaked, and is now up to 0.14%. Experts say that the country’s largest banks can keep payouts on savings accounts low because they have plenty of deposits to cover their lending businesses for now and don’t need to attract more by raising interest rates.
                                  • Commercial banks, which had been hoping for a movement of deposited money to places offering higher interest payments like government bonds, got some help in Q2 from rising interest rates. Deposits at US banks fell by a record $370 billion during the quarter, the first decline since 2018. Deposits in the banking system usually stay relatively stable but swelled by some $5 trillion in the past two years due to pandemic stimulus. A series of Federal Reserve rate increases is now taking some of that money out of the system, in part by decreasing demand for loans and increasing demand for government bonds.
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