Banking and the Flow of Funds: Are Banks Losing Market Share?

By some accounts, the 1980s was the decade of both debt buildup and the decline and fall of the commercial banking industry. Nonfinancial sector debt grew substantially faster than national output during this period and was mirrored by a commensurate rise in financial intermediation. The commercial banking industry, however, once the dominant type of intermediary, does not appear to have shared in the proliferation of financial sector activity. Funds advanced by U.S. commercial banks as a fraction of nonfinancial sector credit outstanding has declined from 29 to 22 percent in the past 10 years. Moreover, the trend within the industry is widely characterized as one of consolidation: The number of commercial banks has fallen from more than 15,000 in 1984 to fewer than 11,000 today.