Probably, however, there is one caveat, if you’re with one of the five or six major banks in this country relax, breathe in, breathe out. As always the timing of any debacle across the banking sector can never be certain. What is certain is there are some things out of balance, regulations are one thing while depositor behavior has been altogether another. I’m going to present two or three factors that could drive this sector into massive consolidation within the United States. I discovered that the U.S. banking sector has one glaring problem that stood out quickly for me given the current economic environment, there are far too many of them! I never thought I would be reporting on this but I suppose stranger things have happened?

Preface
While I was working for a firm owned by Bank of America I heard a statistic stating one-in-three Americans had deposits @ Bank of America. I was kind of surprised to hear that, I mean I knew they were nationwide and about every major street corner had one but had never really put it into that neat perspective. I’m doubtful much has changed among the largest banks in the country since. There’s also J.P. Morgan, [named after the famous “Gilded Era” financier]; if Bank of America [in all their DEI wokeness is banking 1 in 3 Americans], then surely J.P. Morgan/Chase is banking at least 1 in 3 Americans as well… maybe even more. Then there is Wells Fargo and Citibank, two other major banks. Surely, if these four behemoths are banking say, 80-90% of Americans why and how did the number of depository institutions in this country balloon out to more than 4,100 having a banking charter? Why the need for all these banks? That number doesn’t even include Credit Unions which number around 4,760 in the U.S. Again, why do we need all these deposit institutions? My argument here is that we don’t and the situation is ripe for change. The fact is, there are 1,000’s of Mom and Pop banks here, including credit unions no one has ever heard of. No one but the people that have entrusted money to them, that is. So let’s keep that in mind as we read this piece.

The Year was 1908
I’m going to go back in time first, can anyone guess how many U.S. Automobile manufacturing companies were operating in the United States back in 1908? There were 253 companies spitting out autos, just inside the United States back then and you can probably guess what happened, by 1944 [post – Great Depression Era], that number drove down to where only 44 different auto makers existed. Still a large number that blows my mind to even think about today. I was born in the [late 50’s] and to even imagine that many different automobile companies, well it’s difficult to imagine that many companies having enough traction to make and sell cars. By the 1980’s that number retreated down to just inside a handful. I can think of Ford, GM, Chrysler, American Motors, and maybe one other? It’s known as competition and a “survival of the fittest” event happening in the auto industry. This type consolidation within sectors of the U.S. economy is more common over long periods of time than most would imagine. Happens in nature as well, just about in every industry we find the biggest fish swallowing up the smaller ones. Attrition also takes place as companies seize operations once void of finding any meaningful buyer.

Now the Year is 2024
What could possibly lead to a banking crisis? And why should banks be immune to failing? People that don’t have much between their ears will scream during financial downturns [in these United States] that banks should never be given preferential treatment, that essentially makes them too big to fail. [How many Democrats were crying this song back in 2008?] It is in the public’s interest to have major banks be too big to fail, I’m completely behind the idea. Never allow a “major bank” to fail in this country just like state governments do not allow a property insurer to go under. Claim holders are counting on that insurer to come through after experiencing a loss to make them whole again. It should be the same way with those few banks who are banking the majority of deposits in this country. Stop right there as there is no argument. What we need is truth in reporting and banking regulations that will cut off the head of any snake driving a major bank into insolvency because the other option is way too ugly for the broader economy. [This is the reason why I have been adamantly opposed to banks adopting DEI policies from the beginning. The last thing we need as a country is our major banks filling responsible positions with people solely based on their skin color or sexual orientation, that creates a disaster waiting to happen and therefore should be strictly outlawed. Massive fines should be levied against any major bank practicing DEI hiring policies – I said massive fines! Only the most qualified candidates should ever be tasked with handling someone else’s money, and always.]

One Punch
The exact catalyst responsible for driving the banking sector into consolidation in this country [my prediction] is still unknown as of this writing but there are things on the horizon that could spell trouble for the regionals and smaller banks. Two things have changed, one being that post-COVID left a ton of office space mostly unoccupied. With that a corporate trend developed to allow employees to work more flexible hours, choosing between home or office, a trend that has still not fully reversed itself. This event left organizations wondering how much office space they really need going forward? I’m hearing of all kinds of re-purpose projects underway across major cities where vacant office space has been turned into high rise condominiums. And which banks finance the majority of commercial real estate projects in the United States? America’s thousands of regionals banks have by far the most exposure to commercial real estate, the second largest player might be large property/casualty insurers? Back in the day it was this way, not certain now. This fact about smaller banks is looming large out there as a “risk” talking point for the thousands of regional banks this year.

Two Punches
Now that interest rates are resuming a bid after 40 years of falling [or being mostly benign], money suddenly costs money [to borrow] again, imagine that. Plus, all banks have to pay interest on deposits again in order to compete for funds to lend out which will put pressure on the net interest margins across the banking sector. Add to that, refinancing commercial real estate isn’t cheap anymore and won’t be going forward. I heard that a whopping $900 billion in commercial real estate notes will come due and must be refinanced this fiscal year alone under today’s much higher interest rate environment.

In my most humble opinion I do not see rates falling substantially [absent a complete economic meltdown scenario], there is far too much federal debt that will continue putting pressure on interest rates all across the yield curve. Believe me, you don’t want rate cuts right now anyway, as individual households and as a country we are way better off if rates just remain in a tight range [where they are] and don’t climb much over the next several years. Given that this Federal Reserve Board is responsible for ballooning out the money supply to record levels and it’s still sloshing around out there so should they begin cutting rates, while we’re simultaneously dealing with a record $35 Trillion in U.S. debt? Given that mix [of factors] you and I could be searching for a bridge to live under. The thing essential to paying down a gigantic debt load is implementing policies that are positive for economic growth. I’m hoping you’re of right mind when you step into the voting booth this November as there is only one candidate that can deliver that kind of positive growth. Please take the opportunity to vote him back into office after a four year absence.

1-2-3 and You’re Out
How financially savvy are most depositors anyway, especially those choosing to do business with very small banks and credit unions? I can answer that question for you, “not very sophisticated”. Smaller banks and deposit companies still don’t offer their customers the convenience of Zelle or Venmo. This is one way to determine how small a player your bank is. Plus, if you’re one of these people who parked money into CD’s with a no name bank or credit union because they offered you one-quarter of a point more on a one-year CD than a major institution, how smart was that? Understand that interest received on Certificates of Deposit is fully taxable as “ordinary income”.

I shake my head sometimes wondering if these same depositors have ever seen a run-on-the-bank before? These do occur for real in places like California, the year was 2008 and once again as recently as last year [2023]! You talk about UGLY! Waiting in a long line to withdraw all your money because news broke that your tiny bank is about to go under? By the time that news gets out, your money is gone, gone because that bank/credit union is already in receivership and you’re going to be turned away and asked to wait for some state or federal agency to get “back to you” about your own money. No thank you – I don’t want any part of that!

Too Big to Fail
Should the largest banks, operating within the limits of the law and federal regulators, be “too big to fail”? The answer is Absolutely! This idea does not immunize individual bankers from prosecution for wrongdoing, but absent of that, the largest banks in the country must be rescued. We may only see this scenario once in a lifetime as it’s very rare among the largest institutions, not so with the smaller players however.

“Some Thing” is Coming
That will “right-size” the banking sector in this country. It could be the one-two punch I’ve written of above which trims down the industry of players or maybe even a combination of several factors but I would not ignore this information. On the other hand, if you’re like me and banking with one of the largest institutions in America, just staying there and avoiding the storm makes the most sense [at this writing]. It is my understanding that the handful of major banks in this country have “light” to “no” exposure to commercial real estate. Given that information along with their track records of operating efficiently under regulatory scrutiny for seemingly eons now, and personally? I worry not.