 |
Look at the facts: The FDIC shows that the top deposit-gatherers in the Greater Philadelphia area -- Philadelphia, Montgomery, Bucks, Chester, Delaware, Lehigh, Berks and Lancaster counties -- held a 52.92 percent market share as of June 30, 2002. In four years since then, these top five banks showed a more-than-respectable deposit share increase to 57.33 percent (as of June 30, 2006). Now with PNC's proposed acquisition of Bank of Lancaster County (the lead bank of Sterling Financial), these Big Five will control 58.45 percent of all deposits in these counties. That's a 10 pecent growth in their collective market share over five years. Here's the FDIC's percentage-share breakdown of the Big Five in Philly and the seven surrounding Pennsylvania counties:
FDIC Deposit Market Share Report for deposits in Philadelphia, Montgomery, Delaware, Bucks, Chester, Lehigh and Lancaster counties.
From my perspective, that level of banking concentration in greater Philadelphia creates too much temptation on the part of the big boys to reduce deposit rates. Or to increase loan rates. Just a little, mind you, but changes nonetheless. I’m certainly not suggesting collusion! It’s just that banking options are seemingly getting concentrated, creating the opportunity for the Big Banks to test the price sensitivity of the marketplace. And if we’re not there now, based upon deposit trends, we soon will be.
I also wonder if there is a cost to this success for the big banks. The CEOs of the two best-performing banks over this period have recently left their employ: Jay Sidhu at Sovereign and Vernon Hill at Commerce, although for different reasons.
- Larry Jilk is a former Pennsylvania bank executive, who does not own any stock in the Big Five but does own stock in several commercial banks headquartered in Pennsylvania.
Comments (3)
"They may be tempted to reduce deposit rates?"
Maybe they will. But, your assumption seems to be that banks set rates on market share, and that the consumer deposit market acts like a rational one in response to pricing.
First, deposit rates at ALL of these banks are absurdly low compared to those readily available with a simple google search. (There is a banner ad for ING Direct on this page as I write, offering savings rates not approached by any of the banks you cite.) These local institutions aren't competitive with a reasonable standard on pricing as it stands; if they lowered interest paid now, they'd just be fleecing their depositors slightly more.
Second, the viability of Commerce Bank, which has consistenly high fees, high loan rates and low deposit rates, should show that consumers do not choose banks based on pricing of any sort. They seem to be more concerned about the bank being open on Sunday afternoon and if it will count coins for free...whether or not they have ever, or reasonably will ever, avail themselves of these services. The other banks, especially Citizens, seem to be aping this fast food banking model. (Financially, many Commerce customers would be well served to get an Emigrant Direct account and place all their change in the nearest garbage disposal.)
Deposit rates are low because of the general idiocy of banking customers. Most consumers do not compare rates, so the retail bankers' follow the logical path: give up actual competition in rates and fees...and fleece dumb enough to walk in the door. Further consolidation won't change that dynamic one iota. Why should large banks be denied consolidation in the name of consumers who rarely choose the best available interest/fee offers in the first place?
Posted by meersman | July 21, 2007 8:11 PM
Posted on July 21, 2007 20:11
The concentration int he top 5 is alarming, and thanks for the sharp analysis. I believe we have one more wave of competition as Citi and a few other big boys enter our region, but after that the shroud of oligopoly will have us.
Posted by Donald Hinkle-Brown | July 21, 2007 2:48 PM
Posted on July 21, 2007 14:48
Despite the red flag, this purchase shouldn't be to surprising. Sterling's CFO used to be a CFO over at PNC (NewsVisual: http://www.newsvisual.com/newsvisual/2007/07/pnc-and-sterlin.html), so the connection may have put either party at a bit more ease about the deal.
Posted by Darlene | July 20, 2007 6:01 PM
Posted on July 20, 2007 18:01