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ska_mna

Banking Has Become An Oligopoly Instead Of A Competitive Business

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Quite enjoyed this article by Lynn Parramore -

Full article >

Some quotes -

Banking is not really a competitive industry. In reality, it's more like an oligopoly -- a scenario in which an industry is controlled by a small number of firms. An oligopoly is a lot like a monopoly, where one firm controls the whole show. Only in an oligopoly, you have two or more firms calling the shots, and they love to do things contrary to the notion of a free market, like, say, colluding to raise prices.

[snip]

Concentration of deposits is one measure -- perhaps the best measure -- of competition in the banking industry...

The number of depository organizations in the U.S. fell from 15,416 in 1984 to 8,191 in 2001, a drop of 46.9 percent. The share of deposits held by the biggest five banks swelled to 23 percent in 2001 from just 9 percent in 1984. Sound like a competition-driving trend to you?

If you think 23 percent is a big piece of the pie, consider this: In June 2008, before the Lehman collapse, the share of deposits held by the five biggest banks had soared to 37 percent. And the figure has only risen since then. By 2009, the top five banks (Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and PNC) boasted nearly 40 percent of all deposits.

More good nuggets in the article.

I do think one of the keys to transitioning our banking industry is to allow smaller players to enter the market. If we have a new breed of CEOs leading a new breed of banks, we could see some serious destructive innovation in the industry. I mean, it's crying out for a new ethical brand of bank to come along. There's even some signs in the US of this happening - I like the look of BankSimple for example. (Actually, I've read that BankSimple isn't technically a fully fledged bank, but it's a step in the right direction). If we could have more of this and not just for the high street side... perhaps we can have a financial industry fit for purpose? I mean, I know some people would have no banks and no financial industry at all, but I wouldn't go nearly that far.

What does a good, healthy financial sector look like and how do we get there?

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[quote name=ska_mna' timestamp='1319188332' post='3155159'

I do think one of the keys to transitioning our banking industry is to allow smaller players to enter the market. If we have a new breed of CEOs leading a new breed of banks, we could see some serious destructive innovation in the industry. I mean, it's crying out for a new ethical brand of bank to come along. There's even some signs in the US of this happening - I like the look of [url="https://banksimple.com/]BankSimple for example. (Actually, I've read that BankSimple isn't technically a fully fledged bank, but it's a step in the right direction). If we could have more of this and not just for the high street side... perhaps we can have a financial industry fit for purpose? I mean, I know some people would have no banks and no financial industry at all, but I wouldn't go nearly that far.

What does a good, healthy financial sector look like and how do we get there?

Here's someone in the UK with his eye on the future of banking:

http://www.banktothefuture.com/

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Here's someone in the UK with his eye on the future of banking:

http://www.banktothefuture.com/

Thanks, had a quick look. Didn't listen to all of it, but sounds like it might be a Crowd Funding type of venture? Not to knock him, but the idea isn't new. And I hate to be superficial, but they seriously need to work on their brand/identity. The lens flare logo makes me feel a little sick....

But props to them for getting up and trying something, yup.

What about breaking into the "banking industry proper" though? How does a small bank startup get in on the action these days?

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That's what government regulation and deposit guarantees have done for us. It lulled everyone into a false sense of security, so people stopped asking questions. It also left the tax payer on the hook for the guarantees.

Promises of money != money.

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That's what government regulation and deposit guarantees have done for us. It lulled everyone into a false sense of security, so people stopped asking questions.

So, if I were an entrepreneur and wanted to start a bank, what red tape and regulations are in my way, in your opinion? (not disagreeing that there aren't any, by the way, I just want to put a finger on exactly what is wrong with this particular part of the system) Deposit guarantees is one then I guess.

Possibly stupid question, but is that the overall deposit guarantee equivalent of Fannie and Freddie (who were for US mortgage guarantees, correct?) And if so, is there a particular institution we are pointing the finger at here? i.e. BoE?

Incidentally, did/do we have a UK equivalent of Fannie and Freddie? Sorry, gone off topic in my own post.

Edited by ska_mna

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  • 276 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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