In banking, big is more beautiful than ever. Banks around the world, it seems, are suddenly trying to outdo each other in asset growth.
The world's top 200 banks boosted their assets by a hefty 15% last year, according to an American Banker survey. And the trend as accelerated in recent months with a global boom in mergers. (Complete tables begin on page 6.)
What makes all this so surprising is that only a few years ago bankers were declaring profits, not size, to be their top priority.
Strapped for capital, many U.S. banks were quick to slough off assets, trim new lending, and rush into building transaction-oriented, fee-based businesses.
Abroad, where a limited number of banks held dominant market shares in many countries, possibilities for further expansion looked limited.
But megamergers, and megabanks, are back. In the United States, new banking powerhouses are in the making, resulting from combinations between First Union Corp. and First Fidelity Bancorp., First Chicago Corp. and NBD Bancorp, and PNC Bank Corp. and Midlantic Corp. More are expected.
Elsewhere, from Buenos Aires to London and Tokyo, consolidation is the order of the day.
Big European banks, like ING Group and Swiss Bank Corp., are snapping up British merchant banks as part of a drive to expand global operations
Two of Japan's biggest banks, Mitsubishi Bank Ltd. and Bank of Tokyo Ltd., announced earlier this year they will merge by next April to create the world's single biggest bank with more than $800 billion of assets. Meanwhile, smaller, financially distressed Japanese regional banks are being gobbled up by big "city" banks.
In smaller countries like Mexico, Argentina, and Latvia, newly privatized and established banks are merging to boost capital and build scale.
All of this global consolidation is reflected in this year's American Banker survey of the world's biggest banks.
In a departure from previous policies, American Banker this year lists data for the world's 200 largest bank holding companies, rather than the world's 500 biggest banks.
The figures confirm a trend established more than a decade ago, with large Japanese banks holding the top positions according to assets, followed by big European banks.
No U.S. banks made it into the top 25 banks. Only two, Citicorp and BankAmerica Corp., made it into the top 35.
The reasons behind the latest wave of worldwide consolidation are simple.
As banks rely more and more on technology to deliver the goods, scale becomes increasingly important.
"Nothing has had a stronger impact on our industry than technology," remarked Hilmar Kopper, spokesman of the board of managing directors at Frankfurt-based Deutsche Bank. "Just like industry, financial firms nowadays prosper only if they are efficient, low-cost providers."
Second, the world is increasingly becoming a single market.
"There's an international expansion under way and banks want to be positioned in both a broad range of products and markets," according to Washington D.C.-based banking consultant Gary Kleiman.
This rapid expansion and diversification by banks has triggered a certain degree of alarm among regulators, who find themselves increasingly hard-pressed to keep up with developments.
"Although new market tools and practices have not added new primary risks, there has been a jump in the complexity of identifying, managing, and containing risks," observed Andrew Crockett, general manager of the Basel-based Bank for International Settlements. "Coupled with the increased scale of activity and speed of events in financial markets, this complexity has heightened the rapidity with which losses can mount."
Concern about the ability of regulators to keep up with developments has prompted some officials and bankers to suggest the current system of national regulation may be antiquated. What really may be needed, they say, is some sort of a supranational regulatory system.
"In dealing with the systemic security of today's liberalized global market place, it seems to me that we supervisors and regulators are lagging behind reality," said Andrew Large, chairman of the London Securities and Investment Board. "We regulators are all creatures of our own national histories and legal system.