Between 5% and 10% of U.S. banks will be acquired, or otherwise disappear, by the end of 2011, estimates Greenwich Associates.

In a new report, the financial services consulting firm says that it foresees an ongoing consolidation in the banking business that will result in the number of banks falling to 20% below 2007 levels by 2015. During the same period, the number of bank branches is expected to decline by 25%.

The firm expects that the U.S. banking industry will be characterized by four main trends:

• more restrictive credit policies put in place by banks during the crisis will continue;

• a surge in banking industry mergers & acquisitions;

• bank failures and government takeovers that remain far above the historic norm; and

* emerging acceptance of online banking relationships that reduce the importance of bank branches, and allow banks to compete outside traditional network boundaries.

“Driving these trends will be sustained pressure on banks from underperforming loans in commercial real estate and other areas, rising costs associated with new regulation and the need for increased capital levels,” it says. “The same trends will put pressure on banks and limit the recovery in lending, keeping credit in short supply for U.S. companies. They will also combine to cause dramatic reductions in the size of the industry.”

Financially strong banks will enjoy opportunities in segments expected to recover more quickly (e.g., small business), to hire available talent, and to contemplate potential acquisitions, especially those that come available through the FDIC bidding process, it says.

“Bank management teams must resist the temptation to become overly averse to risk or slow to resume lending as the economic recovery unfolds. It is during this time in the credit cycle when savvy lenders can command pricing premiums, negotiate favorable terms and build relationships that will sustain their business over the long term,” it adds.

IE