The financial crisis has hit the U.S. banking industry hard. As a result, many of the smaller and weaker players have been bought out by stronger and larger ones.
This type of consolidation is typical for industries that have fallen on hard times.
Two executives of large and strong banks -- who are in positions to buy smaller ones and are open to do so in the future -- think the wave of consolidation will continue.
One reason is "that regulation will be much more stringent, [so] you need to extract more cost-savings to run a balance sheet [and] economies of scale play a very meaningful role," said Thomas Cangemi, CFO of New York Community Bancorp.
"If you develop certain systems and processes to comply with regulatory rules, you can lever that same capability over $150 billion just like you can over $1 billion," echoed Kelly King, CEO of BB&T.
Another reason is simply that smaller banks will continue to struggle.
Big banks have recovered faster. For the largest ones with extensive ties to Wall Street, trading (especially the fixed-income market in 2009) helped tremendously.
For large main street banks, areas like corporate banking and wealth management help. These segments are doing well partly because the recovery of corporate America and wealthy individuals have outpaced those of small businesses and the middle class.
The smallest banks, of course, depend precisely on small businesses and the middle class for a bulk of their revenues.
From the demand side, these small banks are attractive buys for larger banks because their "customer deposit is truly an asset to the acquirer and gathering more customer deposits versus wholesale deposits makes you a more attractive franchise," said Cangemi.
During the crisis, financial institutions learned all too well that wholesale funding and short-term borrowing can be pulled very quickly. Indeed, the modern version of a 'bank run' is done on an wholesale and market level while local customer deposits are much more stable by comparison.
So as larger banks hungrily eye the deposit base of smaller banks, and as many small banks teeter on the verge of bankruptcy, this industry is ripe for deal making.
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