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Credit Rating Downgrade Highlights Danger of Banking Concentration

Deposit Concentration is at All-Time High

Washington, D.C. (June 25, 2012)—The credit rating downgrade of 15 of the largest global financial firms demonstrates the danger of excessive concentration in the banking industry, the Independent Community Bankers of America (ICBA) announced today. ICBA said that the downgrade by Moody’s Investors Services shows that the largest financial institutions have implicit government backing and a funding advantage over community banks.

“Moody’s explicitly said that these downgrades would have been even more substantial if these large and systemically risky firms did not enjoy full government backing, which community banks obviously do not have,” ICBA President and CEO Cam Fine said. “Excessive concentration of deposits in the largest and most complex financial institutions poses systemic risks to our financial system, economy and Main Street communities.”

Concentration of U.S. deposits in the largest financial institutions is at an all-time high. While the five largest U.S. banks held 10 percent of the nation’s deposits in 1995, they now hold approximately 40 percent. The 10 largest banks hold nearly 50 percent of the nation’s deposits, contributing to excessive risks at these systemically dangerous financial institutions. (See full table below.)


Full coverage of noninterest-bearing transaction accounts helps reduce this concentration by offering deposit certainty to community banks’ small business and municipal customers. It also keeps deposits in local communities, which allows for greater small business lending to spur the economic recovery. ICBA strongly supports a temporary extension of the program beyond its Dec. 31 expiration.

The coverage was first established by the FDIC in October 2008 as the Transaction Account Guarantee (“TAG”) program, which helped stabilize the banking system and protect depositors. Congress voted in 2010 to modify and extend the program through 2012. However, because of continued economic and financial instability, community banks and small businesses are calling for the program to be extended beyond Dec. 31. More than $1.3 trillion in deposits would abruptly become uninsured if Congress does not extend the coverage.

For more information, visit www.icba.org.