Many folks wonder if U.S. banks are going to suffer a different fate due to Basel III. European Union banks may get an unfair advantage over global rivals because of the bloc's failure to apply international capital rules properly. The Basel Committee on Banking Supervision said in an unusually blunt report that EU rules for implementing the committee's Basel III bank capital accord being phased in from January are "materially non-compliant" in two crucial respects. Banks could end up holding too little capital against exposures to risky assets like low-rated government debt, or their buffers may not be of high enough quality to absorb losses in a crisis, the committee said. Although the news isn't "fresh off the ticker," it still holds true.
A month or so ago I had dinner with some executives from Scott Valley Bank in San Francisco, and we were talking about bank concentration. I was told that currently the top 10 banks in the U.S. hold 85% of the assets! (In a separate conversation about banking with Phil Hudson of Aspen Consulting, I learned that the top 10% of depositors generally account for 70% of the deposits while the bottom 50% of depositors usually account for about 2% of the deposits - which are often the most unprofitable due to pricing.) Sure enough, large banks have absorbed so much in total industry assets that those over $10 billion now control 80% of all assets and the top 660 banks control 90% of all assets. "That means the remaining 6,586 community banks are fighting tooth and nail for the remaining 10% of assets. Clearly the largest banks control the assets in the industry, but more concerns surface when you consider community banks are so reliant on net interest income to drive performance. Banks with $1B or less in assets derive 80% of total revenues from net interest income. That is tough when you consider the very largest bank competitors out there have just reported 3Q net interest margin (NIM) levels at the lowest levels in more than a decade. Such tight NIM is driving fierce competition for loans, so the sooner banks take action to try to stabilize the loan portfolio, the better" per Pacific Coast Bankers' Bancshares.
