Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services...

What We’re Reading

May 5, 2011
/   Spotlight

Below are interesting stories the staff has been reading over the past week. What have you been reading? Let...

As the clock ticks down to the ‘fiscal cliff,’ it’s been interesting to see the response from the banking community. For example, it was reported that at the urging of CEO James Gorman, more than 15,000  Morgan Stanley employees, nearly a third of the company’s workforce, had just sent letters to Congress asking for a “balanced” approach to the eventual deal (if there is one).

Of course, when it comes to the government, the industry has more on its mind than just a looming rise in tax rates and drop in spending. The separate-but-perhaps-related issues were on full display just a day earlier when the same CEO spoke at an industry conference—as comments will surely be of great interest to those same lawmakers currently huddled in negotiations.

“The economies of regional banks don’t add up,” Gorman noted. “There will be more consolidation.” While many bemoan the ‘too big to fail’ shape of the industry as it now exists, the U.S. banking industry actually needs larger financial services institutions with more assets and greater reach. Some recent deals prove his point. In November alone, Jeffries Group was acquired by its largest shareholder, Leucadia National Corp (LUK.N), specifically to assure investors of its staying power, and Stifel Financial acquired boutique investment bank KBW.

Despite its own impressive asset base, Morgan Stanley itself is far from immune to these pressures. The investment bank’s credit rating was downgraded earlier this year, in part because of concerns that it can’t compete with the likes of JPMorgan Chase in specific businesses. And at the same conference, Gorman acknowledged that Morgan Stanley is getting out of some markets, though he maintains that the company is not looking for a buyer.

This premise clearly runs counter to conventional wisdom, which holds that too many banks are already too big to fail. This was at the root of numerous debates during the recent election cycle, with continuing controversy over the massive bank bailouts initiated during the Bush administration. The promise, of course, was ‘never again.’ But when some institutions inevitably hit hard times and by dint of size alone threaten to jeopardize the entire financial system with an imminent collapse, what then?

It’s tempting to look overseas for pointers. Canada serves as prime example—it has a high degree of consolidation, yet was largely unaffected by the financial meltdown. By contrast, France remains a source of worry. A few banks there, also very consolidated, carry a huge amount of debt, and that may prove to be a problem both short- and long-term. The U.K. banking system has related concerns: The Bank of England just sent out a warning British banks need greater capitalization to defend against a euro zone fallout. In other words, they need to be bigger.

Of course, we’re not going to get the answers from any single source, especially one that’s overseas. The U.S. system is simply much larger than, and more competitive than, any other to make a direct comparison. It’s also subject to both regulatory compliance and free-market pressures that are essentially unique and always evolving.

The current angst over the fiscal cliff will eventually fade. Either a deal will get done with neither side being too happy about it, or a deal won’t get done and the spending cuts and automatic tax hikes will kick in, and Congress will be forced to develop new mandates. They may even find a way to kick the can down the road and put in temporary measures that don’t solve anything.

Whatever happens, there’s no question that we need a long-term outlook—the current agonizing over the Bush tax cuts and Obama stimulus packages serve to shine a spotlight on the state of the economy as a whole, and the banking industry’s role in it. Those writing in to Congress to ask for a ‘balanced’ approach are surely right. However, what that approach might mean for us—how big and how regulated we should be—remains a question in search of an answer.


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Compelling voices and contributed content from around the web

Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years' experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

Dena Hamilton

Dena is NCR's Director of Enterprise Fraud & Security Software Solutions. She specializes in fraud, risk, compliance and security, with over 35 years of experience in the financial services space. Her focus is the development and deployment of enterprise financial crime solutions optimized in prevention, detection and back office efficiency.

James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Neill Harris

Neill Harris is product marketing director for ATM solutions at NCR. He travels extensively to many of the world's leading banks and financial institutions, articulating how self-service technology and innovation can inform and support strategies and solve challenges.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Brad Strothkamp

Cleopatra Mavredis

Cleopatra is NCR’s Global Marketing Manager for Channel Solutions and has more than 20 years of experience in the ATM industry. NCR’s channel solution portfolio is comprised of APTRA Vision, Inetco Insight and OptiSuite solutions.

Edward Wade

Edward is a freelance writer from Sheffield. Now living in London, he focuses on business and finance.