Major changes are coming in the banking landscape that will create significant opportunities for management teams with foresight, capital and agility.

Three powerful trends will cause the number of banks competing in the U.S. to contract: a surge in banking industry mergers and acquisitions, a rate of bank failures and government takeovers that remains far above the historical norm and a growing acceptance of online banking relationships and the resulting branch network attrition.

These trends — along with continued demands for additional capital reserves, plus rising regulatory costs — will create a market environment rife with both challenges and opportunities.

Greenwich Associates projects that 5% to 10% of U.S. banks will be acquired or otherwise disappear by the end of 2011. By 2015 the number of banks in the United States is projected to fall to 20% below the 2007 level. Many banks with less than $1 billion of assets will be consumed by larger, more financially secure banks seeking efficiencies of scale. Smaller banks will struggle with the increased cost of greater regulatory oversight.

The survivors will probably include foreign banks that take advantage of industry dislocations to build a significant presence in the U.S. market. These foreign banks and other U.S. banks will compete in an industry in which regulation and market pressure instill a new degree of separation between traditional depository institutions and risk-taking companies. At the same time, however, increasing activity by private-equity firms once the regulatory landscape clarifies could give traditional banks ownership by risk-taking firms.

Several other major shifts will take place. For large and midsize depository institutions, insurance will become a fully integrated mainstay business, transforming the insurance distribution model far beyond the insurance brokerage divisions owned by a few banks today. Over time, banks will once again generate meaningful credit capacity through securitization, using a new and improved model in which mandatory risk-sharing and put-back clauses to originators mitigate excessive risk-taking and poor oversight.

The coming months will see unprecedented opportunities for banks with the necessary financial strength and management acumen. During the current breakdown in the "originate-to-distribute" credit model, management teams should be focusing on annuity businesses such as cash management, as well as on opportunities in segments expected to recover more quickly, including small business. At the same time, banks should be taking advantage of opportunities to upgrade their own quality and capabilities by hiring available talent and preparing themselves for potential acquisitions, especially those that become available through the Federal Deposit Insurance Corp. bidding process.

Yet it is not enough to focus on these strategic opportunities. Banks must also be looking at the role of technology and how it can transform their businesses and deepen customer relationships, allowing them to sell to and serve their customer base in a way at once more effective and cost-efficiently scalable.

In future, a combination of remote deposit capture, increased on-line functionality and computer-to-computer live video conferencing will replace many visits to the bank. It will also let banks bring distant product experts into the relationship and more effectively compete beyond their branch networks — a development that will invite into the market nontraditional competitors not saddled with expensive brick-and-mortar operations.

Finally, bank management teams must resist the temptation to become overly risk-averse or slow to resume lending as the economic recovery unfolds. U.S. banks' challenges include the need for increased capital levels associated with underperforming loans in commercial real estate and other areas, as well as rising costs associated with new regulation.

These factors will keep banks under continuous pressure and hamper the recovery in lending, keeping credit in short supply for U.S. companies. It is during this time in the credit cycle when savvy lenders can command pricing premiums, negotiate favorable terms and build relationships that will sustain them over the long term.

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