With few exceptions, the banking and lending
industry has rebounded to a much healthier condition after suffering intensely
from the Great Recession that officially ended in 2009, along with the related
financial meltdown that brought the world of banking into a state of
crisis.
Meanwhile, global financial
regulators have steadfastly continued the struggle to improve banking reserves
and oversight to the point that future meltdowns might be avoided.
On the positive side, banks in Europe and the
U.S.
have been put through stress tests by regulators, and have been forced to
dramatically increase their levels of capital.
Banks are posting very high levels of capital that give them a
significant cushion of reserves against potential losses.
Since the 2008-2009 financial crash, consumers
in America have been more reluctant to go into debt than in the past.
This trend changed to some extent during 2016
and 2017.
While many consumers continue
to think conservatively, some forms of credit have been growing: 1) Consumers
have greatly increased their purchases of automobiles, and the total amount of
car loans has been rising.
This is due
to the fact that consumers delayed car purchases during the recent recession,
have a bit more confidence now and are taking advantage of low interest
rates.
2) Total student debt rose
significantly in recent years due to rising tuition costs and college fees,
along with the fact that many people
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With few exceptions, the banking and lending
industry has rebounded to a much healthier condition after suffering intensely
from the Great Recession that officially ended in 2009, along with the related
financial meltdown that brought the world of banking into a state of
crisis. Meanwhile, global financial
regulators have steadfastly continued the struggle to improve banking reserves
and oversight to the point that future meltdowns might be avoided.
On the positive side, banks in Europe and the
U.S. have been put through stress tests by regulators, and have been forced to
dramatically increase their levels of capital. Banks are posting very high levels of capital that give them a
significant cushion of reserves against potential losses.
Since the 2008-2009 financial crash, consumers
in America have been more reluctant to go into debt than in the past. This trend changed to some extent during 2016
and 2017. While many consumers continue
to think conservatively, some forms of credit have been growing: 1) Consumers
have greatly increased their purchases of automobiles, and the total amount of
car loans has been rising. This is due
to the fact that consumers delayed car purchases during the recent recession,
have a bit more confidence now and are taking advantage of low interest
rates. 2) Total student debt rose
significantly in recent years due to rising tuition costs and college fees,
along with the fact that many people returned to college or graduate school
because they were discouraged by a difficult jobs market. 3) Mortgage debt has been on a slow rise as
the housing market picked up and foreclosures slow down. Home equity borrowing has also risen.
The drop in credit card and consumer debt was
dramatic after the 2008-2009 financial crisis. Today, borrowing on revolving credit is increasing. Balances on U.S. credit cards peaked in 2008
at $866 billion. By the second quarter
of 2017, balances were $780 billion (which was up from $678.3 billion for the
same quarter in 2014). The number of
open credit card accounts has also fallen, from 496 million in 2008 to 357
million as of the first quarter of 2017, according to Argus Information &
Advisory Services LLC.
Banking has become a highly globalized
industry. This was fueled by four
factors: 1) the availability of global
electronic networks for distribution of funds and real-time management of
information; 2) the easing of local restrictions on ownership of banks by
foreign entities; 3) the opportunity to serve the needs of multinational
corporations; and 4) the increasing attractiveness, from a banker’s point of
view, of rising household wealth in emerging economies. New opportunities were sought out globally by
major banks. However, regulations in
many emerging economies restrict the level to which foreign firms can own local
banks.
U.S.
Financial Regulations Likely to Change Dramatically as a Result of the 2016
Presidential Elections: The results of the
2016 presidential election in America dramatically change the outlook for
banking regulation. The Trump
administration will likely be very focused on streamlining Dodd-Frank, in
particular making the burden lighter on smaller banks while retaining
reasonable capital requirements on large banks. Some elements of the now defunct Glass-Stegall Act may be reinstated, an
idea that is popular among many Republicans and Democrats. A modernized Glass-Stegall law would make
large firms separate their commercial banking and investment banking
activities, perhaps through spin-offs and reorganization. Another likely step will be to significantly
curtail the power of the recently-established CFPB, the Consumer Financial
Protection Bureau.
In the U.S. and Europe, one rapid result of the
global financial crisis was a cry in the halls of government for greatly
increased supervision and revamped regulation of the financial industry, from
banking to insurance to the investment sector. Regulations enacted after the financial crisis of 2007-2009 put banks,
insurers, investment managers and credit card firms under pressure, making it
more difficult to operate and harder to earn profits.
The
“Shadow Banking” System: Non-bank companies
that offer financial services are a competitive threat to traditional
banks. Retailers, automobile
manufacturers, stock brokers, insurance companies and other business sectors
are offering a growing array of bank-like services, from loans and mortgages,
to credit cards, to money market accounts with checking account-like features. Wal-Mart has become a retail financial
services giant by opening banks within its stores in Mexico, along with “Money
Centers” within hundreds of its U.S. stores. Its Bluebird cash card enables customers to pay
bills, cash checks and perform other non-depository business. In September 2014, Wal-Mart announced a
partnership with Green Dot Corporation whereby the retailer now offers low-cost
checking accounts called GoBank, through a Green Dot-owned bank.
Hedge funds and other alternative investment
companies are making corporate loans, taking market share away from commercial
banks. General Electric makes massive
amounts of corporate and business loans. The Financial Stability Oversight Committee, part of the U.S. Department
of the Treasury, is increasing its oversight of the largest non-bank financial
services firms. More recently, trends in
financial technology have enabled non-bank lending firms to proliferate on the
Internet.
Financial
Technology (FinTech) Becomes a Hotbed of Innovation: A revolutionary wave of apps for smartphones
that act like debit cards and manage financial accounts is sweeping Asia and
slowly taking root in Europe and the U.S. Firms on all sides of this market are trying to gain an early lead,
including tech companies like Google and Apple; cellphone manufacturers like
Samsung and Huawei; and credit card companies like Visa.
Financial services technologies receiving the
most investment and effort include those for:
Mobile
payments
Insurance
sales and distribution (eliminating the traditional broker/middleman)
Management
of investment accounts through artificial intelligence (“robo-investing”), with
the effect of reducing management fees
Consumer
and business lending.
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