We are in the midst of national bank consolidation, driven by large bank cash reserves and a regulatory environment that favors big banks. Thanks to a massive wave of financial regulations since 2008, like Dodd-Frank, all banks have experienced increased compliance costs, but the community banks have felt the biggest impact. The combination of lower interest rates and a heavy regulatory burden have cut into the profit margins of all banks, but because Dodd-Frank did not distinguish between big and small banks, the smaller banks have felt the effects disproportionately.
Simultaneously, many large banks have high stock prices today, making it easier to use that stock as the basis for acquisitions. Nobody should begrudge Charlotte-based banks and other North Carolina banks for accepting terms that will produce strong returns for their shareholders and managers, even if that means moving their corporate headquarters.
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We’ve seen this movie before. After a long trend of national consolidation, an uptick in interest rates, and some regulatory loosening, we could see local banks start to crop up again. There are signs of change on the horizon. New banks were recently announced in Boston, Austin, and Buffalo. With the Trump administration’s plans to deregulate the banking industry and with interest rates on the rise, we could see the beginning of a community bank renaissance.
Investors look for inefficiencies. There will be opportunities for local investors and banking managers to exploit industry niches, local economies, and personal relationships. Look for many of those investors and new entrepreneurs to emerge from places like Charlotte, Raleigh/Durham, Winston-Salem, and other growing markets in North Carolina.
Even with the loss of another corporate headquarters, Charlotte remains the second-largest banking city in America. Premier banks like PNC, Fifth/Third and Wells Fargo, now called “Super Regionals,” make Charlotte their southeast headquarters. That trend shows no signs of abatement.
Charlotte may not ever go back to leading the nation in the number of giant banks headquartered downtown, but it should continue to lead in finance technology and industry disruption because of all the brain power and experience that remains. Unlike regulatory compliance, which gives the mega banks an advantage, technology tends to level the playing field. Charlotte can be a leader in developing and exploiting emerging technologies that will shape new business models and customer experiences.
As we’ve seen in health care and the sharing economy, technology and innovation can revolutionize industries. Ironically, this leadership could significantly contribute to more competition for the mega banks and maybe even fewer big bank corporate offices in downtown Charlotte. But, who really knows if that is a good or bad thing in the long-term? Only the market, driven by fair and robust competition and multiple customer choices, can tell us. Let’s let it work and see what the future holds. Personally, I’m bullish on Charlotte’s future in the finance industry.
Pritchett is senior vice president of the John Locke Foundation.