by Justin Dove, Investment U Research
There was a time when a trip to the bank would take quite awhile. Friday payday lines were sometimes unbearable. Banks even stocked lollipops to keep restless children quiet during the long waits.
Skip to 2011 and many bank branches are a ghost town. There are rarely long lines and the staffs are noticeably smaller…
Technology enables many people to avoid branches altogether. Direct deposit, ATMs and online banking make it too easy to skip an extra errand in our busy lives.
But branches losing foot traffic is more symbolic than anything. After all, the bank will still collect income on investments of deposits. They'll also still cash in on numerous fees (which continue to rise).
However, there are some reasons to believe we've already seen the peak of these mega-financial institutions. For instance, retail banking profits are down more than 50 percent from the pre-crisis peak. According to a report by banking consultants Novantas, "it is now clear that revenues will not return to former levels."
To understand where banks are headed, we need to understand history.
The Great Retail Banking Shift of 1994
Things started shifting greatly in the world of retail banking in 1994. Around the time "Forrest Gump" and "The Lion King" were lighting up box offices, Bill Clinton signed a landmark act into law. The Riegle-Neal Interstate Banking and Branching Efficiency Act allowed banks to be connected across multiple states.
This led to the rise of large U.S. retail banking networks such as Bank of America (NYSE: BAC) and Wachovia. But it doesn't end there…
In 1999, the Gramm-Leach-Bliley Act went into law. This controversial piece of legislation repealed certain aspects of the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956. Most importantly, it allowed commercial bank holding companies to dabble in other areas of the financial sector.
In the aftermath of the Great Depression, our legislators found that there was a conflict of interest in investment bankers serving as officers of commercial banks. Gramm-Leach-Bliley overthrew that notion. The early 2000s brought on the great consolidation of our financial institutions. It created "too big to fail."
Banking Industry Learning Lessons the Hard Way
This consolidation created an unprecedented period of wealth and prosperity for large retail banks.