The Banking Landscape Potentially Transformed

During the latter part of September the financial markets were subject to some major shifts; we essentially watched the U.S. banking landscape transform in a matter of weeks. 

We saw JPMorgan Chase purchase the banking operations of Washington Mutual after it was closed by the Office of Thrift Supervision. Wells Fargo finally ended its squabble with Citigroup last week over its acquisition of Charlotte, N.C.-based Wachovia. These headline grabbing purchases only helped to push forward the consolidation being witnessed within the banking sector.

With the nation’s banking largest institutions now gobbling each other up and the credit crisis continuing to batter the industry for both large and small players alike, there is a strong probability that the once fragmented U.S. banking system will likely continue to experience significant changes. 

One such probable change would deal directly with the federal cap on the percentage of overall U.S. deposits an institution can control.  The current federal regulatory limit for banks is 10 percent of all U.S. deposits.  But with the recent string of acquisitions bringing Bank of America, Citigroup, and JPMorgan Chase to a combined 31.3 percent of U.S. deposits, it has become clear that in the era of the super-banks the 10 percent cap has already been breached, and will need to be increased or augmented in some fashion. 

As of June 30, 2008 Bank of American, JPMorgan Chase, and Citigroup had total domestic deposits of $701 billion, $497 billion, and $266 billion respectively.  Wells Fargo, Wachovia, and Washington Mutual had total domestic deposits of $293 billion, $422 billion, and $188 billion respectively. After all of the acquisitions take force, Chase will have nearly $800 billion in deposits, Wells Fargo $720 billion and Bank of America $700 billion.

Another potential regulatory change, brought front and center as a result of the ongoing credit crisis, deals with the current FDIC deposit insurance level.  As a part of the $700 billion bailout/rescue package, the FDIC coverage for bank deposits was temporarily increased to $250,000 per account from $100,000 through 2009.  As the financial crisis steers more individuals towards regular bank deposit accounts, there is the possibility that the appetite may be there for this temporary coverage increase to become a permanent one for a U.S. populace still trying to decipher all the negative economic headlines.