Further, the banks have been suffering from competition from other sectors, such as money market mutual funds and (for corporations) the commercial paper market. There is no trend toward monopolization of financial markets, as far as I can tell, so those with sufficient money to start with can do an end-run around the banking system. In fact, they have been, since the role of the banking has been shrinking as a percentage of the total financial sector in the U.S.
I think integration is a bigger risk within the financial industry than consolidation within any individual component, meaning integration across banks, funds, insurance companies and reinsurance companies. You don't need to have total monopolization of one service to have undue influence in the sector. If you take Citigroup as a prime example, you're looking at an entity that provides classical lend and save commercial banking services through Citibank, investment banking services through Salomon, insurance services through its acquisition of Associates and fund management and retail investment services through the old Smith Barney. It's not just a bank, but a large self-contained facet of the financial industry. JPMChase can be viewed similarly. So could Merrill Lynch, Morgan Stanley, Goldman Sachs, etc if they were to merge with or acquire a commercial bank.
(2) ... In turn, this encourages them to take undue risks with other people's money, since they know that the taxpayers will provide. (This is the moral hazard problem.)
It's also a real credit risk problem. Smaller and regional banks have to pay a premium to the FDIC for insurance, larger national banks do not, though the FDIC wants this to change. The reason: large banks lobbied to have themselves considered less of a risk because of diversification. As recent events have underscored, they aren't. And by focusing less on retail customers and more on corporates, they become even more of a risk.
(3) that banks will be even larger bureaucracies than they already are, being more interested in the well-heeled customers (including the bigger businesess) than in individual "middle class" depositors and borrowers.
Absolutely. But I think it's less an issue of bureaucracy and more an issue of thirst for market share and fees. The investment banking and commercial loan departments at JPM Chase have no problem finding each other and servicing the largest corporations. But, in other areas of finance, the smaller consumer is getting squeezed. There are several asset management firms, Sanford Bernstein for one, that continue to raise the limit a customer must have under management for particular services. Insurance investments, the same thing.
Nomi
