Does Bigger Equal Better?

A recent newspaper article in the American Banker named the ten largest banks in the world in 1992. It also listed the ten largest in 1982, 1972 and 1962.

The 1962 list was comfortable and familiar-Bank of America, Chase Manhattan, First National City Bank, Manufacturers Hanover, Barclays and Midland (London), Chemical, Morgan Guaranty, Royal Bank of Canada and Canadian Imperial Bank of Commerce...six United States Banks, two English and two Canadian.

The 1992 list tells quite a different story-Dai-Ichi Kangyo, Fiji, Sumitomo, Sanwa, Sakura, Mitsubishi, Norinchukin (all Japan), Credit Lyonnais (Paris), Industrial Bank of Japan, and Deutsche Bank (Frankfurt)... eight Japanese, one French and one German.

Taken on the bare facts of the list, one might reasonably assume that the United States institutions are not doing as well as they might, or they would be in that list. But one has to take a deeper look at the facts.

Four of the ten most profitable banks in the world are from the United States. As a matter of fact, 19 of the top 50 most profitable are ours-that's 38%.

Profitability is figured by determining the average return on equity. The seven biggest commercial banks in the U.S. earned 22.37% in 1992. The thirteen major Japanese banks earned 4.77%.

Banking has turned the corner and is on the way up in the United States, but it is still an upward climb. We're operating on a leaner, tighter scale-as of the end of the first quarter of this year there are 11,328 commercial banks ... there were 13,139 at the same time in 1988-a loss of 1,811 banks.

The face of banking is changing, and so is the competition. If banking is to continue to be profitable, it has to have what many call a "level playing field." Many so called "non-bank institutions" offer the same services as banks, but without the same regulations or restrictions. At the same time, banks cannot offer services the non-banks do because Congress has not approved the broadening of powers.

It takes no more than simple arithmetic to know that business will move away from the banks if they are not allowed to compete in offering as many services for the same dollar as consumers can get elsewhere.The biggest factor in the survival and profitability of the banking system in the United States is the people in them. Bankers have been and always will be special, loyal, innovative people who care about their customers. It is this special quality that has enabled banking to move in the direction it has, it spite of-but not because of-the "help" from the regulators and the government.

We may not have the biggest banks in the world-but we have the best!

Copyright © 1993 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 4, No. 3, 8/93