By: Kyle Jennings

Banking, one of the world’s oldest businesses, is constantly changing.  The number of banks is on the decline.  According to the Federal Reserve Bank, the number of independent commercial banks declined by 36.2 percent from 2007 to 2018. The 8,681 banks reporting to the FDIC in 2007 dropped to 5,442 in June 2018.

It’s not just the number of banks that is changing.  The technological age has brought vast changes.  Regulatory changes have had a major impact.

With all the benefits of online banking, physical branches are less of a necessity. ATMs and online banking caused long lines at banks to disappear.  Customer service is offered by phone, chat, or email.  Customer service reps and tellers are not as necessary in physical bank locations. Many banks that take advantage of online services close unneeded physical branches to cut costs. The internet has led to the creation of jobs for IT specialists who oversee the online aspect of the bank.

Banks are rapidly shifting online.  This begs the question, why don’t all banks offer online services?  Online banking is expensive.  Banks must significantly invest money into marketing to achieve the trusted brand image that is desired for an online bank.  Online banking comes with risk.  It is easier for criminals to breach online banks than traditional banks.  The cost of cybersecurity and the regulations surrounding it are rising.  Major financial institutions such as JPMorgan Chase & Co., Bank of America, Citigroup and Wells Fargo spend a collective $1.5 billion on cybersecurity annually, according to cyber industry experts, SecurityScorecard.

The days of banking on Monday to Friday between 9 and 3 are over.  Internet banking allows consumers to bank when the bank itself is closed.  Customer support is often seven days a week, sometimes 24 hours a day.  Internet banking is so advanced that customers rarely speak with a teller.  Consumers today can deposit checks, check their account balance, and transfer money by using a computer or smartphone.

Online banking is becoming a top priority when choosing a bank.  Account holders may choose one bank over another because of an easier-to-use mobile app.  A customer might even be driven to switch banks solely due to mobile apps.

The internet has globalized banking.  New York and London once dominated banking.  While these cities are still very important, others, such as Dubai and Tokyo, are emerging as key competitors.

Free checking, once commonplace, is now rare.  By regulation, banks are restricted on how much they can charge for fees and interest.  Their answer is to charge for services ranging from monthly checking account fees to covering insufficient funds to stopping payment.  It is still possible to find free checking accounts at local banks, but usually not at regional and national banks.

Regulations have changed significantly.  After the Great Recession of 2008, the Obama Administration set out to ensure such a financial collapse would never happen again.  In 2010, the Dodd-Frank Act was passed.  The Act increased the required capital that banks must keep in reserves and heightened regulations for big banks (those with over $50 billion in assets).  On the FDIC side, fees quadrupled to cover insured deposits at failed banks.

The Dodd-Frank Act was a Democrat-driven act; Republicans strongly opposed it.  The Trump Administration is already planning to remove many bank regulations.  President Trump was quoted, “We’re going to be doing a big number on Dodd-Frank.”  The President has issued a series of executive orders related to regulations.  On January 30, the “two-for-one” executive order required that for every regulation proposal, there must be a proposal to repeal two existing regulations.

Regulations are a great cost to financial firms.  Firms dedicate staff and capital towards meeting government regulations.  In a recent report, the TABB Group, an international research and consulting firm, estimated that the largest financial institutions can each spend over $1 billion a year on regulatory compliance and control.

While 91% of banks are community banks, these banks only account for 14% of deposits and 16% of loans.  Big banks hold significant power and are growing through an increasing number of mergers and acquisitions.  Adversaries argue big banks are mostly concerned with their profits, generating great risk to the global financial system.  In a June 29, 2017 interview with the New York Times, Mark T. Williams, a banking expert at Boston University and a former bank examiner for the Federal Reserve stated, “This isn’t the time to put the brakes on regulation.”  He noted that with the 10 largest American banks holding 80% of all banking assets, “this concentrated financial power residing at the top banks should be carefully monitored.”

The banking system has altered significantly from just 10 years ago.  Online and mobile banking are now key to the industry.  The future of regulations and their impact is unclear.