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 much of Asia, as
well as 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
2016-2018.
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 more confidence now and were taking advantage of low interest
rates.
2) Total student debt rose significantly
in recent years due to rising tuition costs and college fees.
3)
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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 much of Asia, as
well as 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
2016-2018. 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 more confidence now and were taking advantage of low interest
rates. 2) Total student debt rose significantly
in recent years due to rising tuition costs and college fees. 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 2018, balances were $830 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 365
million as of the second quarter of 2018, according to the American Bankers
Association. In other words, banks are being more careful about issuing cards
to people with shaky credit, while many consumers are more interested in paying
cash than making monthly payments.
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 to Change as a Result of the 2016 Presidential Elections: The results of the 2016 presidential election
in America dramatically changed the outlook for banking regulation. The Trump administration has focused on
streamlining Dodd-Frank, in particular making the burden lighter on smaller
banks while retaining reasonable capital requirements on large banks. Another step by the Trump administration has
been to 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:
Advanced platforms that
enable mobile payments via smartphones, such as Apple Pay and Alipay (as an
alternative to credit/debit cards and cash).
Online insurance sales (eliminating
the traditional broker/middleman).
Artificial
intelligence-driven, online management of investment accounts (“robo-investing”),
with the effect of reducing management fees while increasing convenience for
consumers.
Online lending, by
firms such as OnDeck, is enjoying soaring growth while taking some of the
friction and frustration out of the borrowing process, particularly for small
businesses, but also for consumers.
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