Does size matter for banks? Are small banks relevant in a globalized financial environment? These questions do not have overwhelmingly acceptable answers. s have different views on this vexatious issue. Thanks to a series of mergers and acquisitions, there are many big banks the world over which have a high degree of efficiency and productivity. They have strengths like large capital, well-diversified portfolio of lending and financial services, superior technology, highly skilled knowledge workers, global operations, efficient risk management policies, etc. Most of them have evolved into universal banks - the one-stop financial superpowers that offer commercial banking, insurance and securities services.
This way, they cease to be pure form commercial banks and acquire the status of finance firms. While the advantages of such mega entities are well known, they do offer challenges as well. They mega banks may be perceived by the regulator and the government as "Too-big-to-fail" (TBTF) candidates, with the attendant issue of moral hazard. They may often encounter conflict of interests with regard to cross selling, while dealing with underwriting of bonds to clients who are already borrowers. They may only scout for big-ticket borrowers and clients, ignoring in the process, the legitimate claims for finance and financial services of mid- and small-cap clients. They may not be participating in what is called social banking, meaningfully. They may, with high market concentration, become monopolistic and dominate in a competitive market, with unfair advantage and to the detriment of small players. Even the top management team may find it difficult to efficiently manage them due to the diversity in business and financial services. Even regulators could be finding it difficult to effectively supervise them. |
