There is a widespread view that opportunities to cut costs in banking are receding as the big intramarket mergers near completion. Don't believe it. Future progress in industry expense reduction will depend as much on vertical dis-integration as on horizontal integration. Otherwise put, merger mania will soon be supplemented by outsourcing obsession.

The surviving megabanks will be uncovering the existence of, or actually helping to create, a vibrant community of external suppliers of what they are now doing in-house. These suppliers will, in effect, be "hollowing out" banks, denuding them of operations the retention of which is burdensome. The development is not optional for banks, or is so only in the sense that the instructions on a life preserver are optional.

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