The big 4 - JP Morgan Chase ($36.4B), Wells Fargo ($20B), Citibank ($19.4B), and Bank of America ($29B) - cumulatively reported record profits in 2019 in excess of $100 billion.
By every measure, the American banking system is concentrated. The big 4 represent:
36% all deposits
42% industry profits
44% of industry assets
And yet, if you were to read the headlines, you’d hear different stories. Since the financial crisis we have heard how fintechs like Chime, Lending Club, and Sofi were going to disrupt the banks. It’s not only these 3: there are over a 1,000 fintechs globally representing nearly $1 trillion in value.
So, which is it? Is our financial system as competitive as ever? Or, has our system transformed into an oligopoly of 4 big banks?
The reality is both: we have entrepreneurial fintechs addressing underserved or unmet portions of the market. This is at the same time as the big banks have become ever more entrenched in their dominant position.
Whether you believe this is a problem depends on your vantage point. I am of the school of thought that greater competition tends to lead to both more innovation and better outcomes for consumers.
What then, are our options to reduce the concentration of market power within the financial system?
1. Should financial regulators be given a mandate to encourage innovation and competition much as they do in the UK, EU, and other parts of the world?
2. Given the poor state of consumer financial health in America, should the government convene a national financial inclusion taskforce to coordinate a private-public response?
3. Should antitrust regulators be given larger sway to “break up” the big banks as proposed by many on both the left and right?
We have many policy choices that could create change. Choosing the status quo is also a choice.