July 22, 2023 / VOLUME NO. 271

The End of Banks 

Consolidation in the late 1990s set the stage for the modern banking era. 

In 1998, BankAmerica Corp. and NationsBank Corp. merged to form Bank of America Corp., and Citicorp combined with Travelers Group to create Citigroup. Today’s Wells Fargo & Co. was the result of deals between Wells Fargo and First Interstate Bancorp, in 1996, and Norwest Corp., in 1998. In 2000, The Chase Manhattan Corp. merged with J.P. Morgan & Co., forming JPMorgan Chase & Co. 

Those deals transformed the U.S. economy and occurred on the heels of the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act in 1994, removing the last barriers to interstate banking. Hugh McColl — CEO of NationsBank and later, Bank of America — was one of the big proponents of the law, according to the Federal Reserve. “Let the strong take over the weak so that we can move forward,” he said in a 1992 speech.

That was more than 30 years ago. But fast forward to today, and I’ve lost count of the number of articles I’ve recently read predicting mass consolidation in the banking sector — despite a dramatic decline in deal volume in 2022-23. Through June, only 41 transactions have been announced this year, according to S&P Global Market Intelligence. And that doesn’t account for canceled deals such as TD Bank Group’s acquisition of Memphis-based First Horizon Corp.

Even in so-called normal years for M&A activity, coming to terms on price has been a perennial barrier to dealmaking. There’s little appetite to sell in an environment where pricing looks upside down. Bond portfolios are underwater, and the market doesn’t love bank stocks right now. 

Could predictions of the banking industry’s merger-fueled demise be greatly exaggerated? 

Many years before his actual death in 1910, rumors spread that American humorist Mark Twain had died. 

“I can understand perfectly how the report of my illness got about. I have even heard on good authority that I was dead,” Twain said in 1897. His cousin had been ill, it turned out. 

Despite decades of consolidation, the U.S. still supports a uniquely diverse banking industry. Some banks will choose to sell in the years ahead; that’s part of this business. But I don’t think independence-minded community banks should write their epitaphs just yet.

• Emily McCormick, vice president of editorial & research for Bank Director

2023 Governance Best Practices Survey Results: Equipping the Board for a Tough Environment

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A lack of various skill sets and knowledge could mean the board is ill-equipped to ask questions about key risks or business opportunities at a time when the operating environment looks increasingly tough.

• Laura Alix, director of research for Bank Director

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