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Is banking a declining industry? A historical perspective

1994; Volume: 18; Linguagem: Inglês

George G. Kaufman, Larry R. Mote,

Global Financial Crisis and Policies

CI Regulation has been widely blamed for contributing to the decline of the commercial banking in the United States. Before one can evaluate the truth or falsity of this accusation, it is necessary to determine whether banking is indeed a declining industry. To answer this question, we examine a number of different measures of changes in the size of the banking in the United States during the twentieth century. Few industries are as closely associated in the public image with the growth of modern economies as is commercial banking. Bankers have been widely caricatured as pulling the strings behind the bosses of industry and have been viewed with suspicion or fear in many quarters. Indeed, it would be difficult to understand the elaborate set of regulations intended to restrict the growth and thereby the power of commercial banks in the United States without first understanding the widespread distrust of banks and banking dating back to early U.S. history. In the 1800s, some states even went so far as to ban banks altogether. But the image of bankers as all-powerful has changed dramatically in recent years, especially among bankers themselves, their regulators, and the business community. Over the past decade, banking in particular and depository institutions in general have come to be viewed as declining. This widespread perception is based primarily on their declining share of some measure of assets or liabilities for all financial institutions. An example is provided by figure 1, which shows the decline since 1952 in the combined total assets of U.S.chartered commercial banks and U.S. offices of foreign banks as a percentage of the assets of all financial institutions. Several presentations at the Federal Reserve Bank of Chicago's 1993 Conference on Bank Structure and Competition noted this decline (Federal Reserve Bank of Chicago 1993). The common view is that banks are losing out to a wide range of nonbank competitors such as finance companies, mutual funds, and private pension funds that are offering traditional types of banking products more efficiently, either because technological advances have eliminated advantages previously enjoyed by banks or because these competitors are free of costly regulations imposed on banks. The source of any decline is important in judging its welfare implications. If banking were a declining because of market forces, as was the fate of horse-drawn carriages, the railroads, and coal mining, then it would be of concern to bankers who lose their jobs but of little public policy concern.' Indeed, attempting to prevent the decline would reduce aggre-