October 23, 2008



WILL CONSOLIDATION ACCELERATE IN THE FINANCIAL SERVICES INDUSTRY?

The US financial services industry was experiencing a long period of consolidation, on both a geographic and product basis, well before the present financial crisis, but the liquidity constraints in the financial markets have served to accelerate consolidation at a rate never before seen or even reasonably anticipated.

With the merger of certain banking franchises, the absorption of some of the large investment banking operations by commercial banking entities, and the election by the remaining bulge bracket investment banks to be regulated by the Federal Reserve as financial holding companies, the upper tier of the financial services industry now controls a significant percentage of the banking deposits and assets in the US financial services industry. And the action by the US Treasury in persuading the nine largest financial services companies to accept infusions of capital means that those institutions are in effect too important to the financial system to be allowed to fail.

But what about the remaining 6,000 or so US financial institutions? What is their fate, and can we expect to see rapid wholesale consolidation in the industry as a result of the US government’s actions?

For our readers, we have prepared a summary of the issues that financial services companies need to understand in this new economic and regulatory environment. Please read it here.