Battle of the Bulge
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Pretty interesting stuff from
Meredith Whitney at Oppenheimer and Company.
"The big-bank model isn't going to last much longer, banking industry analyst Meredith Whitney said at the Journal's Future of Finance Initiative, and said a more sustainable approach would be bigger regional banks.
Whitney, famous for foreseeing the troubles facing Citigroup, suggested that key parts of the big banking model made them susceptible to the types of problems that caused the financial crisis. One issue is the physical distance between loan originators and borrowers. Good lending results from a relationship with borrowers, and regional banks are in a better position to take advantage of those relationships."
This line of thinking is very logical, of course, and we believe that that the immediate impact of the financial crisis is that we will see a bulge in the middle of the market: big banks trying to get their house in order, and the very small banks and credit unions finding the cost of doing business to be much greater (FDIC insurance, other regulatory pressures). The middle of the market is growing, and many regional banks and credit unions are seeing new account volumes doubling in many cases (with associated increase in fraud, or course).
How do you think the market will shape up in the next few years? Will the big five control 75% of the market? Will we still be beholden to the big five? How will their offerings change, if Meredith Whitney's scenario plays out? I do think this regional bank growth phenomenon, if it does happen, is a medium-term phenomenon -- probably 3-5 years -- before the next inevitable cycle of consolidations kick in. Who will be the big banks then?
And how will the patterns of fraud change as the market consolidates, and the middle of the market bulges? More check fraud because nobody is looking hard? More new account fraud because of the migration of new accounts? More online fraud as the rush to acquire migrating customers results in simpler account opening procedures?