The drive to break up the big banks has won a surprising number of adherents from both sides of the political spectrum — everyone from Neel Kashkari, the Republican head of the Federal Reserve Bank of Minneapolis, to Bernie Sanders of Vermont, the Democratic socialist who has made it the heart of his campaign.
The issue is usually analyzed from a political standpoint, focusing on whether a breakup is possible and how it could be done.
But the topic raises a critical question that is seldom asked, much less answered: Is there a legitimate, coherent business case to be made for the largest and most complex banks to stay large and complex? Do megabanks serve a critical function that justifies their undeniable risk to the financial system?
The answer is, unsurprisingly, difficult to determine and varies greatly depending on whom you ask. American Banker interviewed bankers, industry representatives, analysts, reform advocates, academics and others to attempt to break down whether the presence of large U.S. banks is still necessary for the economy.
The need for megabanks continues to be part of a spirited discussion by many within and outside the banking industry. While there are certainly economies of scale associated with large organizations, there is also the realization that such scale often brings with it an impersonal user experience and lower customer satisfaction. Also, both smaller and midsized financial institutions can now take advantage of new innovations and expanded capabilities in such areas mobile and digital banking and branch and contact center reconfiguration, making them more competitive with larger institutions’ products and services.
Overview by Ed O’Brien, Director, Banking Channels Advisory Service at Mercator Advisory Group
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