Banking Industry Snapshot

Christine Braun | Sep 08, 2015

The Great Recession wreaked havoc in financial markets and engendered a rash of new regulations, Dodd-Frank being the main piece of legislation. In this post we describe the structure of the banking industry over the past twenty years in Santa Barbara county. In 2014, banking industry consisted of 19 institutions with a total of $10 billion in deposits, an increase of 4.55% over the year. The two largest banks, Union Bank and Wells Fargo Bank, with respect to deposits in the county remain unchanged from 2013 although Union Bank saw a decrease of almost 4% in deposits. 


The Herfindahl–Hirschman Index (HHI), a commonly used measure of industry concentration, calculated by summing the squared market shares of all firms, is 0.1162. This index approaches zero as the number of equally sized firms grows and reaches its maximum 1, when the market consists of only one firm. The Department of Justice considers any market with a HHI between 0.15 and .25 as moderately concentrated, making the current banking industry in Santa Barbara un-concentrated. 

Heritage Oaks Bank’s acquisition of Mission Community Bank, finalized in February 2014, continues a downward trend of institutions in the county. The figure below shows the number of institutions and the normalized HHI over the past 20 years. The number of institutions in the market normalizes the normalized HHI, thus serving as a measure of the equality of dispersion of market shares. The figure reveals that although the number of banks has steadily decreased over the past 4 years, the normalized HHI has deceased as well, implying a shift toward more equal market shares among institutions.


With the announcement of a merger of American Riviera Bank and The Bank of Santa Barbara in July we can expect the industry concentration to increase in 2015. The announced merger would give the new bank a market share of 3.1%, making it the 9th largest bank with respect to deposits in the county. The post-merger HHI is .1166 keeping the banking industry in the county un-concentrated.