How Banks Drive Growth

By James Chessen

As we enter the last year before the elections, it is possible that the banking industry will be a target for criticism, including perhaps calls for its radical restructuring. What is missing is the basic fact: the U.S. economy remains the most dynamic economic power in the world because it is supported by a diverse and vibrant banking sector. Our $19 trillion economy must have a banking system that is large enough, diverse enough and integrated enough to serve individuals and businesses at the local, regional, national and global levels.

Today, our banking industry is made up of institutions of all sizes and types serving over 300 million consumer customers, over 45 million small business customers, and over 10 million middle-market, large corporate and government customers.

The banking industry’s depth and breadth is essential to meeting the broad array of financial needs of our customers and communities. Large companies need services of a scale that can only be met by large and regional banks with their significant amount of capital and human resources. Regional and small banks serve the financial needs of smaller suppliers and their employees. And small community banks reach into every corner of our country. In fact, there are more than 850 counties—roughly one out of every four—that have no physical banking offices except those operated by community banks.

It is this interconnectedness of businesses of all sizes and types served by banks of all sizes and types that makes the U.S. banking system so unique and valuable. It provides greater access to credit at lower borrowing costs, and greater convenience to reliable and affordable services. Without such a diverse banking system to fund operations from agriculture, manufacturing and international trade, businesses would be constrained in their ability to grow, to sell locally and globally and to hire workers that produce and sell their products.

Banking is an integrated, competitive, innovative sector that employs 2.1 million workers and supports tens of millions more in jobs through lending to businesses large and small, local and global. It is therefore no surprise that the U.S. financial services sector has been a leading driver of our country’s GDP, increasing in importance over time and even offsetting much slower growing sectors such as retail trade and manufacturing. Without their contributions to GDP—including adding a trade surplus of over $82 billion from financial services exports—U.S. growth would be weaker and fewer jobs would be created.

Any policies that would prevent the U.S. from having banks of all sizes will have negative consequences and diminish America’s global leadership role in financial services. It would make it much harder provide needed credit and financial services to individuals and families, small and medium sized enterprises and large employers and exporters—all of which would have significant consequences for all bank consumers and the U.S. economy.

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About Author

James Chessen

James Chessen is ABA's chief economist.