It’s not all that bad. Really.
My confidence on this point stems largely from the history of banking in the United States. Yes, there’s been turmoil, now and in the past.
“But when I look at the wider canvas, I see continuous and successful adaptation to change.”
For instance, the branching restrictions developed in the 19th century were designed to ensure that no bank could amass an undesirable concentration of power or choose remote locations that would deter depositors from redeeming notes. This is a quaint notion today, but was absolutely vital when all business had to be conducted in person. Banks responded by modeling themselves to service single, discreet markets. The real beauty of this was that when the economy consisted of a patchwork of regional economies debt capital was distributed wherever it was needed by thousands upon thousands of banks. The economy thrived in a granular as well as aggregate sense, and so did the banks that supported it.
Later when the completion of the transcontinental railroad meant transcontinental commerce, so-called “chain banks,” were formed which were confederacies of banks all owned principally by the same investors. These were followed in 1890 by the first bank holding companies.
When the S&L crisis hit, and the notion of regional lending and deposit gathering presented very real risks and limitations, banking consolidated through the creation of intra, inter and national branch systems. It wasn’t always pretty, but it worked. For instance, while the number of banking companies in the United States between 1982 and 2007 contracted at a compounded annual rate of 2.8%, average bank profitability expanded at a compound annual rate of 11.3% every year, according to aggregate data extracted from archives on the FDIC’s site.
So what does the future hold for banking? It’s difficult to say any more than one could predict the landscape for the industry in the midst of the savings and loan crisis. But it will change, survive and ultimately prosper.
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