Each depositor insured to at least $250,000 per insured bank

		Home > Industry Analysis > Research & Analysis > Regional Outlook

Regional Outlook

Regional Perspectives New Bank Activity Occurs in Clusters Consistent with national trends, the New York Region has experienced an increase in new bank activity over the past three years. Sixty banks opened in the New York Region between June 30, 1996, and June 30, 1999. In fact, 1999 is shaping up to be a record year-19 banks opened in the first half of the year, compared with 21 banks in all of 1998. Also, 16 additional new bank applications were approved in the first six months of 1999, but these institutions have not yet opened. Over 6 percent of the Region's banks have been open for less than three years. What is contributing to the growth in the number of new bank charters? Local economic and demographic factors, particularly in New Jersey and Pennsylvania, appear to be tied to clusters of new bank formation. Another key factor could be the ongoing industry consolidation (see Table 1). With the enactment in 1994 of the Riegle-Neal Interstate Banking and Branching Efficiency Act, barriers to interstate banking all but disappeared. As a result, expansion across state lines through mergers increased significantly. The number of banks and thrifts in the nation declined by almost 12 percent from June 1996 through June 1999. Consolidation in the Region occurred at about the same rate. Over the same period, the number of established banks (those chartered before June 30, 1996) fell by 17 percent in the nation and the Region. Consolidation often results in workforce reductions as merged institutions combine operations; displaced banking talent then begins to look for new opportunities, which may include chartering a new bank. In addition, as larger banks acquire neighborhood institutions, there may be a real or perceived loss of community involvement or gaps in service. The acquisition of neighborhood institutions may create potential niche opportunities in market segments underserved by larger banks.5 5 However, a recent FDIC Division of Research and Statistics study that examined de novo activity between 1995 and 1997 concluded that industry consolidation was not positively correlated with new bank formation. Nonetheless, anecdotal evidence in the Region suggests that consolidations have contributed to recent new bank formation in some local areas. Record profitability of existing institutions over the past six years also has contributed to the increase in number of new bank charters. After the banking crises of the late 1980s and early 1990s, the industry began to recover. Industry profits have risen each year since 1993. Potential new bank investors, monitoring the industry's record profits, may feel more secure that they, too, can profit from their investment. The number of new bank charters increased slightly beginning in the mid-1990s but surged in 1997 after a couple of years of improved profits reported by the industry, and has accelerated since that time. The strong economy also has played a role in the increase in the number of new bank charters as a strong and expanding economy is more attractive to entrants than a stagnating one. Pennsylvania and New Jersey See the Most Activity Pennsylvania and New Jersey have experienced the highest levels of new bank activity in the Region. New banks in Pennsylvania are clustered primarily in the Philadelphia metropolitan area (see Map 1). Although the Philadelphia economy has lagged the rest of the state, the surrounding counties have experienced strong economic growth in the past few years. These counties have benefited from new business formation and job expansion in technology-related industries and business services. The strong employment gains have driven unemployment rates down to the lowest point in the decade, and, in many cases, even lower than the national average. Increased business demand for space also has pushed down office vacancy rates. Philadelphia is home to three new banks, despite the city's relative economic weaknesses. With considerable merger activity occurring in Philadelphia during the past few years, comparatively few banks remain headquartered in the city, which may encourage new entrants. Map 1 In addition, Pennsylvania counties with multiple bank openings in the past five years6 have per capita income rates at or above the state's average, except for Philadelphia County. These counties also tend to have lower unemployment rates than both the state and the nation. Another measure of opportunity relates to market concentration, which is defined as personal income per branch by county.7 The five Pennsylvania counties with multiple bank openings report an average personal-income-to-branch figure of $82,740, significantly higher than the state's median of $49,790, and perhaps an indication that these counties may be fertile ground for new banks. 6 The counties are Allegheny, Bucks, Chester, Montgomery, and Philadelphia. Data are from January 1, 1995, through June 30, 1999. A county is said to have multiple bank openings if more than one new bank established headquarters there over that period. 7 Personal income data are from the Bureau of Economic Analysis as of December 31, 1995. Branch data are from the Federal Deposit Insurance Corporation/Office of Thrift Supervision Summary of Deposits as of June 30, 1996. The measure is county personal income divided by the number of branches in the county. New bank formation in New Jersey is most evident in the central part of the state (see Map 2). Central New Jersey has benefited from a growing state economy and economic spillover from a vibrant New York City economy. The growing numbers of commuters who work in New York City but live in central New Jersey are responsible in part for a strong housing market and growth in service and retail businesses. In addition, new commercial real estate construction has begun in response to the demand of new or relocating businesses, which find central New Jersey a reasonably priced alternative to Manhattan. Map 2 As with Pennsylvania, five counties in New Jersey8 have experienced multiple new bank charters over the past five years. Again, the per capita income level for these counties is at or above the state's average. Unemployment rates for these counties also favorably compare with the state average-four of them are below the average, and one is at the average. The counties also report an average personal income-to-branch figure of $90,975, compared with the state's median of $79,320. This difference, again, may indicate that the counties may be attractive sites for new banks compared with other counties in the state. 8 The counties are Mercer, Middlesex, Monmouth, Somerset, and Union. Data are from January 1, 1995, through June 30, 1999. Regional Outlook Information Return to Regional Outlook main page