"Commercial
banks are slowly dying. The
activities that were formerly profitable are either illegal, immoral or simply
not profitable any more. And the core activities that society wants and needs
are also unprofitable, at least if they are done in the way that society has
come to expect – free-while-in-credit transaction accounts, inflation-level
interest on deposits, fixed low margins on lending. Meanwhile, commercial banks
face stiff competition from new competitors – not new banks, though there are
some of these, mostly backed by large retail organisations – but an astonishing
and ever-increasing range of mostly internet or phone-based providers of
deposit-taking, lending and payments services. Unlike the new providers, banks
are having to meet higher capital and liquidity requirements and comply with
tighter regulations, while suffering margin squeeze because of low interest
rates and a continual drain of dissatisfied customers. And they are still
facing legal costs and fines for their past misbehaviour. It's a very tough
world for banks at the moment.
And they are paying the price. The big investment banks are already breaking themselves up, and
they will be followed in due course by the big universal and retail banks. What
has not been achieved through regulation may yet be achieved through market
forces."
