Steve Eisman, the famed investor who famously bet against the housing market (as depicted in “The Big Short”), is sounding the alarm about a potential banking cartel forming in the US. He’s worried this could lead to higher costs for everyday banking services.
A Lack of Mergers and a Growing Problem
Eisman points out that there haven’t been many bank mergers since the 1990s, largely due to regulations put in place after the 2008 financial crisis. However, he argues that a wave of mergers is actually needed. He cites JPMorgan Chase’s massive growth as an example: its share of US deposits has nearly doubled since 2007, from 7% to almost 14%.
He explains this growth by pointing to two key factors: the high cost of regulation (which larger banks can handle better) and the skyrocketing cost of technology, requiring significant investment only achievable by large institutions.
Without mergers, Eisman predicts a future where a few giant banks like JPMorgan Chase and Wells Fargo dominate, leaving smaller regional banks to struggle. This, he warns, could create a situation similar to Canada’s banking system, which he describes as a cartel that allows banks to charge higher fees.
A Call for Consolidation
Eisman suggests that mid-sized banks, such as US Bank and Comerica, should consider merging to better compete with the giants. He emphasizes his concern that without consolidation, consumers will ultimately bear the brunt of higher banking costs.
