At the global level, the consolidation of banks or mega-banks is a phenomenon that the authorities have begun to consider positive in recent years, not only because it allows them to be more efficient and improve their ability to meet new challenges such as digitization, but also because it generates a more stable financial system, even with an increase branches in some countries.
Since 2010, Larry Summers, who was the chief economic advisor to then-President of the United States, Barack Obama, has defended the mega banks, arguing that dividing them was futile and that the proliferation of smaller banks would make the financial system “less stable.”
“(Observers) think that will actually make us less stable, because the banks will be less diversified and therefore more at risk of failure, because they will not get profits in one area that can be traced back to when problems occur in a different area,” he said at the time.
Lee: Scotiabank has ambitions for Mexico and this is his plan to be multichannel
In this sense, the Federal Reserve of Cleveland, United States, indicates that as consolidation progressed within the banking industry, the total number of bank branches for each institution increased, resulting in an increase in the number of branches to meet the needs of the bank accounts of its customers.
According to the study “Did bank merger change people’s access to a full-service bank branch?” , despite the fact that more than 2,300 banks have disappeared in the past twenty years, moving from 6,326 to 3,985 institutions, which branches in the same period increased from 66845 to 76,757.
“As consolidation continues, the number of branches for each institution has increased, resulting in a larger branch network for clients to meet their banking needs,” the institution notes.
The Cleveland Fed also notes that urban consumers saw little change in their ability to access a full-service bank branch, while rural consumers saw full-service branches become more affordable.
Similarly, the European Central Bank indicated in 2020 that consolidation could help banks in the eurozone achieve economies of scale, increase efficiency and improve their ability to meet new challenges such as digitalisation.
The profitability and sustainability of banks’ business models are among the supervisory priorities for 2020 and are important to increase banks’ resilience and ability to serve the economy, including in the context of the coronavirus (Covid-19) pandemic. “, Considered.
In turn, the US Banking Policy Institute ensures that large banks have helped attract new customers, especially millennials, by investing in new products and services in the current digital age.
“Those larger scale institutions spend significantly more than their regional competitors in absolute dollars, while their overall size allows them to maintain a ratio of technology and marketing expenditures to revenue comparable to those of regional banks,” he highlights.
Don’t Miss: What Happens If Santander, Banorte, HSBC, Slim or Salinas Pliego buy Banamex?
Mexico focus banking and sell Banamex
With the sale of Banamex by Citi in Mexico, there can be greater competition among the major banks, because if one of the main institutions buys it, it will reach a size similar to BBVA, the most important financial institution in terms of assets, managing 2 billion 454,152 million pesos, i.e. Equivalent to 22.15% of the total financial system.
For Jorge Sánchez Tello, Director of the Applied Research Program of the Foundation for Financial Studies (Fundef), there is a lot of competition in the banking sector, because it is one of the few sectors with many companies; For example, 50 banks against 3 telephone companies and 1 telephone company concentrate almost the entire market, which is not the case in the banking system.
In this sense, the specialist considers that it is not a risk that if the second or third largest player in the sector compares Banamex, it will generate greater competition among the big banks in the country, in addition to the fact that there will be no legal impediment.
In addition, it highlights that Mexico’s Herfindahl-Hirschman index on banking concentration has remained at around 1,500 points, always below the reference level of 2,000, which means we have a competitive system.
In the banking system there are different sectors in which they compete, for example in credit cards, mortgages, etc. Like everything, it can be improved, but unfortunately in Mexico there is an excess of banking regulations, but despite everything, there are a large number of small or medium-sized banks dedicated to financing SMEs, payroll loans, credit cards. Sanchez Tello notes that thanks to the fact that there is banking competition, they have mitigated the impact of higher interest rates.
Do you already have us on Facebook? Give us your like and get the best information