CRF Blog

Why scale matters

by David De La Torre

In We happy few, part of its special report on international banking, The Economist reports that fewer large banks will exist on the global stage.

MOST INVESTMENT BANKERS think a lot of themselves, but they seldom crow about their competitors’ troubles in public. So it came as a surprise when Gary Cohn, the president of Goldman Sachs, told a press conference in Brazil in April that banks other than his and JPMorgan were “taking a pretty substantial step back from the markets” in a way that had not been seen “in the entire history of banking”.

He was not exaggerating. Across the world the investment-banking industry is caught up in an unprecedented wave of deleveraging and deglobalisation. In large parts of the rich world most banks are shrinking their balance-sheets, retreating from foreign operations and closing businesses. This is dramatically reshaping the industry. In future it will increasingly be polarised into, on one hand, a handful of global “flow monsters” that stand astride global capital markets, and large numbers of much smaller regional and domestic banks on the other. [more]