CONSOLIDATION, COMPETITION, AND DIVERSIFICATION

1
CONSOLIDATION, COMPETITION, AND DIVERSIFICATION

• Trends in Financial Services Industry, early 1999

2
Traditional Segmentation

• Specialization due to Competitive Advantage
• Regulations limited firms to Authorized
  Activities
• Taxation

3
Environmental Changes

• Technological Progress
• Improvements in Financial Condition
• Excess Capacity or Financial Distress in Markets
• International Consolidation of Markets
• Deregulation of Geographic or Product Restrictions

4
Technological Progress

• Computerized delivery of most
  intermediation services
• Processor and software power boosts
• Is FMVB next?

5
Improvements in Financial Condition

• Management of Financial Risk
• Buffer against Financial Stress

6
Excess Capacity or Financial Distress

• SLs down 56 (1980-1995)
• Savings banks down 16
• Commercial banks down 28

7
International Consolidation/Diversification

• Foreign banks have wider range of powers
• More consolidation across sectors

8
Deregulation of Geographic Restrictions

• Interstate banking allowed

9
Deregulation of Product Restrictions

• Delivery system changes, a la NASDAQ
• Insurance business

10
Product Geography ?

• Nordstoms owns a thrift charter--will offer
  credit cards, home equity loans, checking
  accounts

11

• Ukrops Super Markets--launched a bank, with
  discounts on groceries tied to checking accounts
  and loans

12

• Hildebrand Funeral Homes--bank trust accounts to
  pre-pay for funerals

13
References Used

• Arshadi, Nasser, and Gordon V. Karels. Modern
  Financial Intermediaries and Markets. Prentice
  Hall, Inc., 1997.
• Berge, Allen N., Rebecca S. Demsetz, and Philip
  E. Strahan. The Consolidation of the Financial
  Services Industry Causes, Consequences, and
  Implications for the Future, Federal Reserve
  Bank of New York Staff Reports, Number 55,
  December, 1998.
• Murray, Matt. Retailers Use Legal Wrinkle To
  Link Sales, Bank Services, The Wall Street
  Journal, Feb. 8, 1999, p. B1.