Wednesday, February 9, 2011

After the Crisis Smaller Banks Find Their Niche

‘That which does not kill you makes you stronger.’ Neitzsche

Many tough lessons were learned by the US financial community in the past three years. Now that the worst may be over, our attention has turned away from counting the countless bank failures of 2009 and 2010.

After peering over the edge into the abyss in the darkest days, some community and regional banks have roared back from the brink of extinction and have grown to rival their more conservative regional competitors (who never veered off the road).

Lest we forget the learned lessons of pain, let’s be honest and admit that, at the bleakest point, nearly all banks (large and small) were fair game for closure by the regulators. Since then, banks have been given ample time and the many tools necessary to heal themselves.

It is no secret that survival and newly found financial strength sprang from healthy government assistance, flexible & favorable banking policies, superior scrappy salesmanship by those banks on the edge and an exceptionally large dose of new found internal risk management discipline. Like rediscovering religion, the last of this list is the best thing for the long term health of banking.

Unfortunately, in today’s hyper-competitive environment, the weak may not inherit the earth; community and regional bank survival is a take-no-prisoners multi-front all out war.

In a hyper-regulated world it will be difficult to duplicate the efficiencies of larger competitors. Real estate will be less and less necessary. Thousand of branches are going to close. Before we knew it the old bank branch has been replaced by an app on your smartphone.

Big bank consolidation of market share in the aftermath of the crash is not done but, if they have their wish, has just begun. The small bank of the past, sad to say, is an endangered species unless it can differentiate itself from the big bank mass market approach via new, competitive and customer-smart algorithms.