Dr. Periklis Gogas Professor, Dr. Periklis Gogas 
Anna Agrapetidou, Ph.D. Candidate
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Professor, Dr. Theophilos Papadimitriou,
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Department of Economics
DEMOCRITUS UNIVERSITY OF THRACE
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The problem
The health and stability of the banking sector is crucial in modern economies. Failures of systemically important financial institutions and generalized distress in even less significant banks can propagate to the whole sector very fast. These issues of distress, if not addressed swiftly and directly by the regulators (usually the central banks to associated specialized entities) may lead to wide-spread full economic crises and even international financial crises.
The U.S. banking sector
From 2000 to 2018 the total number of banking institutions in the U.S. decreased from 9,904 to 5,406 (more than 40%). This significant decline was the result of: a) an increased number of bank failures (more than 500 banks went bankrupt), b) a lack of new financial institutions entering the U.S. banking sector and c) a consolidation process through mergers and acquisitions. The financial crisis of 2007 highlighted the systemic effects of a banking crisis propagated in national (to other sectors of the U.S. economy) and international level (to other national economies around the world). Moreover, it raised serious concerns on the appropriate regulatory policies in effect and led to significant supervisory and regulatory reforms in an international scale (the Dodd-Frank Act and Basel III). Banking institutions are supervised, and their performance is monitored and evaluated by regulatory authorities through i) periodic stress testing, ii) the imposition of minimum capital requirements (Basel III), and iii) the implementation of prompt mandatory corrective actions when their financial position deteriorates significantly.
