When Louis Brandeis inveighed a century in the past in opposition to the misuse of “different individuals’s cash,” he had in thoughts the standard deposit, the {dollars} that prospects stash in banks for safekeeping and future use. At present, a brand new technology of bankers have exactly the identical aim of getting their palms on our cash—extra for his or her profit than ours.
Deposits are the uncooked supplies with which bankers play, the important thing to unlocking market energy, as giants like Financial institution of America and JPMorgan Chase reveal. Extra deposits improve a financial institution’s potential to chisel prospects with charges whereas paying them much less in curiosity. And a slowing financial system signifies that cautious shoppers with additional money are actually extra probably to economize as a cushion, boosting deposit progress.
Banks are racing to purchase each other on the quickest price in 35 years.
For these causes and extra, banks are racing to purchase each other on the quickest price in 35 years, assured that Donald Trump’s merger-friendly regulators will approve the transactions in much less time than it takes to, nicely, plan a financial institution theft. The merger wave is crashing over banks of all sizes, from neighborhood banks Plumas and Cornerstone, collectively value $61.3 million, to Cincinnati-based Fifth Third and Dallas-based Comerica, which can create the ninth-largest financial institution within the nation, in a $10.9 billion transaction.
JPMorgan Chase, already as giant as its subsequent three mega-bank opponents mixed by belongings, has set a aim of growing its U.S. retail deposit share from 11 to fifteen p.c of all deposits. Financial institution of America boosted its deposit base by one-third within the final 5 years.
There’s one obtrusive inform concerning the intent of all this consolidating. The consultant-industrial advanced—Boston Consulting Group, Deloitte, and naturally, McKinsey, which bluntly calls deposits “a profitability lever”—can not cease speaking concerning the cash banks stand to make from deposits. In different phrases, Wall Road is demanding that Wall Road consolidate extra—and rapidly.
Mergers Amid a Deposit Disaster
Wanna purchase a financial institution? Based on S&P World Market Intelligence, practically 150 financial institution mergers value round $45 billion have closed to date in 2025. The typical approval time, together with giant transactions, is now about 4 months.
This tempo of merging has not been seen since 1990, when a decade of deregulation and the financial savings and mortgage disaster accelerated issues. And simply as in 1990, a disaster lurks within the background, this one from 2023.
The regional financial institution disaster started with the collapse of Silicon Valley Financial institution, as enterprise prospects spooked by the Federal Reserve cranking up rates of interest quickly took their deposits elsewhere. That failure set off a series response of what economists name deposit “flightiness.” Regional banks centered on enterprise lending like Comerica noticed company shoppers, which have deposits above the $250,000 restrict for FDIC insurance coverage, transfer their cash to different deposit-like devices, akin to cash market funds, or to the too-big-to-fail mega-banks.
“The dearth of a retail, extra granular deposit base made our deposits a bit extra flighty, a bit of simpler to maneuver giant, chunky industrial deposits, and it took us a bit to get well from that,” Comerica CEO Curt Farmer mentioned. The merger with Fifth Third will give the mixed financial institution “a extremely nice retail deposit base,” he mentioned.
Elevating Cash to Make Cash
To banks, deposits comprise one of many methods they increase cash to earn a living. There are different funding mechanisms, like promoting shares to the general public or retaining earnings, however that dilutes the worth of current shares, which are sometimes linked to pay packages. Borrowing extra money is at all times an choice, however that comes with regulatory and market limits.
So bankers are likely to rhapsodize about deposits, risk-free funds kindly offered by legions of less-informed, less-mobile prospects. “That’s what drives the profitability on this firm,” Financial institution of America CEO Brian Moynihan bragged earlier this month to finance commentator Marc Rubinstein. BofA has the biggest shopper deposit base in america, with $949 billion and about 69 million prospects. Deposit values have grown by 34 p.c within the final 5 years, though its buyer base is simply 4 p.c bigger, Rubinstein notes.
The highest 4 U.S. banks, which embody Financial institution of America, JPMorgan Chase, Wells Fargo, and Citigroup, held about 30 p.c of the $18.3 trillion in lively financial institution deposits as of June 30. The ten largest banks maintain about 44 p.c of that cash. We’re witnessing consolidation atop consolidation.
The higher a financial institution’s share of deposits, the much less it must pay in curiosity. (A producing monopolist makes the buyer pay extra for a services or products; banks train market energy by paying prospects much less cash for deposits.) The distinction between that value and the prevailing rates of interest bankers can cost (internet curiosity earnings) is pure revenue for a financial institution. As Rubinstein notes in his evaluation of Financial institution of America, low-cost deposits drive 55 p.c of the corporate’s income, about $60.4 billion of internet curiosity earnings this 12 months.
Knowledge offered to the Prospect by S&P that breaks out the curiosity paid on deposits by financial institution measurement makes unambiguously clear that bigger banks get away with paying much less it doesn’t matter what type of financial savings car, together with ones that aren’t technically deposit accounts, like cash market funds. As of September 30, for a $2,500 financial savings account, a financial institution under $10 billion in belongings pays you 20 foundation factors (0.2 p.c). Banks above $500 billion in belongings pay one-tenth of that: two foundation factors.
Given the Fed’s stubbornly excessive rates of interest, this quantities to a roughly $1 trillion switch away from depositors and into the palms of banks. And the larger you might be, the extra money you get.
Charges, Charges, and Extra Charges
The laborious technique of switching banks leads most of us to remain put. All these kinds authorizing direct deposit of wages, automated invoice pay, and deliberate financial savings have to be refiled. Screw up and also you miss a fee, or worse, a paycheck.
Banks desire depositors who’re caught with them, they usually manipulate their department construction to take care of stickiness, one thing that works regardless of the attract of on-line banking. A 20-year research of department banking and depositors printed just lately discovered that established banks desire to shut branches in areas with “rate-sensitive prospects,” typically the extra prosperous who’re conscious of different choices, and transfer cash simply. Banks have “restricted potential to extract rents” from high-end prospects, the authors of the research concluded.
This basic stickiness allows banks to depend on prospects for money that the banks can lend at a revenue. It additionally permits banks with market energy to layer junk charges onto prospects, a better solution to earn a living than harvesting the unfold between deposits and loans, which includes the painstaking, time-consuming technique of underwriting.
The charges take many kinds, together with charging increased curiosity on bank cards and chronic levies on prospects who overdraw their accounts. Because it occurs, Fifth Third has a few of the highest overdraft charges round. Even because the Client Monetary Safety Bureau (CFPB) virtually succeeded in lowering overdraft charges throughout the Biden administration, Fifth Third did fairly nicely. In 2024, it collected $108 million from overdrafts, about 4 p.c of its revenue.
The Fifth Third-Comerica merger announcement stresses the significance of charges. It touts that the mixed financial institution could have wealth and asset administration and industrial funds strains which can be “recurring and excessive return payment companies.” They might say the identical factor about overdrafts.
Wall Road Hearts Consolidation
Comerica went on the block and bought to Fifth Third, giving it the wherewithal to wring extra money out of its prospects. Why now, exactly?
Nicely, Wall Road. Previous to the merger announcement, Comerica got here beneath strain to promote from HoldCo Asset Administration, a hedge fund, which revealed a 1.8 p.c stake that’s at present value north of $200 million. It additionally has stakes in two different banks. (HoldCo is now whining that Comerica didn’t maintain out for the perfect value doable; it might have been capable of extract extra from Areas Financial institution.)
At Atlas Service provider Capital, a de facto hedge fund, the previous CEO of the British financial institution Barclays, Bob Diamond, is fantasizing a few historic rollup of the 4,500 U.S. banks beneath Trump regulators. “We predict that there’s going to be consolidation that takes that variety of 4,500 to one thing nearer to 1,000 or 1,500 actually over the following two to a few years,” Diamond informed Bloomberg. Diamond’s agency has raised a $150 million fund particularly dedicated to taking stakes in regional banks and urgent for consolidation.
HoldCo and Atlas reveal how finance, uniquely amongst industries, accumulates monopoly energy as a result of it each encourages consolidation whereas concurrently consolidating inside itself. Wall Road loves monopoly energy as a result of nothing squeezes money out of the top buyer like a monopoly.
Examples of this dynamic abound. Personal fairness corporations have aggressively pursued the rollup technique, utilizing one vital acquisition as a platform to gobble up smaller ones that collectively consolidate an trade. The rollup enjoys pricing energy whereas the remainder of us get increased prices and worse service. On the similar time, personal fairness itself is changing into a enterprise of giants. Elsewhere, Visa and Mastercard are a duopoly of card fee processing. In banking, the 4 largest mega-banks now harvest practically one-half the revenue, and the highest ten bank card issuers maintain about four-fifths of shopper balances.
Recovering From Bipartisan Failures
A primary step in combating consolidation could be a more durable line on financial institution mergers, admittedly unlikely beneath Trump. However the Biden administration was itself largely a failure on this entrance. Biden’s Division of Justice tried to reassert its function in adjudicating financial institution mergers, however the legislation places the Federal Reserve and financial institution regulators within the driver’s seat, they usually refused to revamp the outdated financial institution merger pointers, regardless of exhortations from monetary reformers. Treasury Secretary Janet Yellen even performed footsie with the thought of encouraging financial institution mergers. Progress within the subsequent Democratic administration? Right here’s hoping.
A second step could be giving individuals the chance to get unstuck from their banks. The CFPB took some preliminary steps with the open banking rule, giving prospects higher rights over their very own account knowledge. It was a measure to enhance competitors wrapped within the mantle of shopper alternative: With knowledge extra moveable, new providers may support depositors in switching banks. CFPB Director Rohit Chopra mentioned open banking “will give individuals extra energy to get higher charges and repair on financial institution accounts, bank cards, and extra.”
The problem has break up Wall Road and Silicon Valley. Financial institution lobbyists went to work on the rule within the courts, and received it suspended. Then the fintech foyer, keen to supply providers that compete with banks, fought off an try by Russell Vought, the performing director of CFPB, to kill the open banking rule outright. As a substitute, the CFPB introduced it is going to revise the rule, citing “current occasions within the market.” One such occasion was JPMorgan Chase’s plan to impose heavy charges for patrons or new monetary corporations to entry their knowledge.
Since its origin, the open banking rule has loved bipartisan endorsement, a reminder that the anti-monopoly reflex runs deep in america. The American Fintech Council, the foyer group of the monetary upstarts, has dug in for a battle. So has the Financial institution Coverage Institute, mouthpiece of the large banks.
The bankers certain like their depositors. They simply don’t need to compete for them.
