The Shrinking Landscape
While attending bank industry meetings, it dawned on me that the banking industry wasn’t the only one actively consolidating. The recently announced acquisition of Stern Agree by the investment banking firm Stifel is a vivid example of that. On the home front, my firm just completed a merger of two 100-plus-year-old law firms, and many other law firms, big and small, have done the same over the past decade. The Big Eight accounting firms have shriveled in half to the Big Four, and many other professional industries have seen similar consolidation.
What Does All This Mean?
Economies of scale are driving all companies to be more efficient. No doubt technology is playing an important role in this process to some degree. If nothing else, communicating between offices in divergent locations has become a lot easier. With the ongoing consolidation of the banking industry, there are fewer clients for the accounting, law, and investment banking firms to represent, resulting in a domino effect on service providers of all types.
Is This All for the Better?
I really don’t know. Fewer choices can limit customers’ alternatives at all levels. When Arthur Andersen was forced to shut down after Enron and SOX, a powerful competitor and alternative was taken out of the mix. I guess I am not convinced that bigger is always better. The OCC consolidated over the years from 14 regions to six districts and now down to just four. I don’t think that has improved service or the ability to better know and serve their respective markets.
What Will the Future Hold?
It is unclear, but what is most disconcerting is the lack of new blood and start-ups in many industries, including banking. Particularly post-recession, it seems that much of our entrepreneurial spirit has been tempered and that we have become more of a risk-averse society. I don’t think this bodes well for our country in the long term. Unfortunately, in the short term I expect further consolidation in banking and little new blood until the current economic and regulatory climates change. I believe that healthy competition is what drives excellence and hope we can regain that “start-up” spirit across the board. Only time will tell.