Noted Shark Tank investor Kevin O'Leary recently indicated that the US banking system is heading for a period of major consolidation following a loss of confidence in the financial sector.
In a recent Fox News interview, the venture capitalist said that the number of regional banks in the US is likely to fall by half in the next few years. He stated the following:
"We have 4,100 regional banks in America. Probably in the next three years there will be only 2,000. They are going to consolidate…
People are very nervous about putting their money in the bank because if another bank fails and you have your money there, right now you only have a $250,000 guarantee."
O'Leary's prediction comes at a time when new data shows that savers have withdrawn money from the US banking system for five consecutive quarters.
According to the Federal Deposit Insurance Corporation (FDIC), total deposits increased from $18.7 trillion at the end of the first quarter to $18.6 trillion at the end of the second quarter - a drop of $100 billion on a quarterly basis.
Although the pace of deposit flight has slowed, Martin J. Gruenberg, chairman of the FDIC Board of Directors, indicated that Americans continue to withdraw money from banks to seek other opportunities that generate higher interest rates. He said the following:
"Total deposits were $18.6 trillion, down 0.5 per cent quarter-on-quarter, down from the 2.5 per cent decline reported in the first quarter.
The second quarter saw the continuation of the trend where clients are actively seeking higher returns.
Lower-earning accounts such as transaction accounts, money market deposits and other savings accounts decreased by $412.8 billion during the quarter, while time deposits increased by $306.7 billion."
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