I just returned from a short vacation in a European country. Typically European, in which the federal government plays an oversized role in the lives of the citizens of that country.
I spent some time observing the banking industry (busman’s holiday?).
There are far fewer banks. There is less competition. The banks are very security conscious. The banks are even more regulated than in the US. Marketing of bank products and services is usually limited to in-branch display (and since the banks are so security conscious, there are not many customers in the lobby). The customer experience in that country was very different from that offered in the US.
Let’s take a brief look at the American banking industry. There are currently 7,513 insured banks. Of these, 6,846 or 91% are banks with an asset size of less than $250 million and can be considered community banks. Yet, the 9% larger banks have about 90% of the total assets in the industry. The industry is consolidating at a fairly rapid pace. Using the $100 million banks as an example, in 1990 those banks composed 70% (in number) of all banks; in 2000 they were 55% and 34% in 2010. During this same time frame, the total of insured institutions has dropped from about 15,000 to the previously mentioned 7,513. We are losing the community banking segment of the industry.
What’s causing this consolidation? The single most important factor is the change in the business model emanating from new regulatory requirements and laws. The smaller the institution the larger the proportionate cost. There are many sides to the larger argument of regulation equals consumer protection. But, I would argue that if consumers are charged a higher cost or with less choice, the price of regulation has exceeded the benefit.
The point of all this is that we are becoming Europe in which the industry is dominated by the giants. Community banking—in which you know the bankers and the directors-- is dying out. Pushed out by a regulatory zeal that has yet to prove its benefit.
Do you want America to become Europe? While it may be fun to bash the banking industry, there are real consequences in reaction to regulation.
That’s what’s going on!