There may be thousands of banks, but all but a few manage their funds at one of the big few, essentially acting as resellers of the big banks' services. For example, I my bank is "Ally Bank", but if I ask them for instructions on how to receive a wire transfer, they instruct me to direct it to "JP Morgan Chase Bank, N.A.", the largest bank in the U.S. I previously used the brand "Simple Bank", which provided accounts via "The Bancorp Bank", the 5th largest.
It's a similar case to cell phone providers: although there are hundreds in the U.S., all but four do not operate their own network, but rather resell the network of one of the big four.
It's an interesting question, though, how much this consolidation is due to regulation versus being a result of a natural monopoly, i.e. high barrier to entry for the type of business.
> It's a similar case to cell phone providers: although there are hundreds in the U.S., all but four do not operate their own network, but rather resell the network of one of the big four.
Three mobile networks, since Sprint was merged into T-Mobile. It was also inevitable since it does not make much sense to have many different organizations install cell towers and run all that wiring all over a country the size of the US, and split a limited resource like wireless spectrum conducive to data transfer.
IMHO, both situations are true. There used to be more regulations in the US to prevent monopoly formations in media in a region [1] that once relaxed lead to more concentration. Banks had/have some regulations on M&A [2] which when relaxed generally result in smaller banks getting bought out. Concentration are natural trends in many markets without regulation to limit it. Maintaining the "invisible hand of free markets" isn't actually a naturally stable equilibrium in many markets. Especially those where fungibility is low (local media, local banking, ISPs, healthcare, etc).
Now in other markets a high bar of regulations conversely encourage concentration due to increase costs of meeting the regulations. Reforms like Frank-Dodds can be a mix, both making it more expensive to meet the accounting and reporting needs favoring larger companies, but also imposing rules limiting concentration of ownership. However regulation heavy fields can still be opened up by startups/new entrants if they're significantly better than competitors (SpaceX comes to mind).
It's multi-faceted game theory, not a simple rule or sliding scale.
Most of the 'banks' in that count serve as the local monopoly, or as part of a duopoly, or triopoly in their region and are protected by and regulated primarily by state laws as well. Many state banking regulations are significantly more lax than federal banking regulation.
The handful of banks in the U.S. that serve multiple states and fall under federal banking regulation seem even more consolidated than the baby formula industry on a variety of metrics.
Certainly more consolidated per dollar of cash flow. Probably more consolidated per dollar of net profits.
etc.
Which would be the expected outcome of the theory if the baby formula industry in the U.S. were less regulated than federal banks but more regulated than state banks.
