Wells Fargo sold in excess of fifty branches in their network today. They sold the branches in Indiana, Michigan, Ohio, and Wisconsin.
I like the move for a variety of reasons. First, I attribute the timing to the recent rollback of Dodd Frank provisions. The roll back specifically helped smaller, regional banks, like Flagstar. The rollback gives them more freedom to lend to their customer base, which has been plaguing smaller regional banks since the rules were enacted. The intention was good, but the rollout was misguided.
I also like the news because this may spur divesting of branch assets from major competitors, such as Bank of America, Citi, and Chase. That is good news. Let me explain. If more regional banks gobble up assets from larger competitors, you will find increase competition in banking. A lack of competition in the industry can be directly attributed to regulations and consolidation following the Great Recession. Once more local banks have bigger assets, and more of a local presence, they can begin to operate the way they once did pre – 2008.
What does that entail? This will mean increased competition on rates for mortgages. It will also increase rate competition on smaller loans, such as automobile and personal loans. Finally, it will help drive up consumer deposit rates. Historically, smaller banks led the way in rising interest rates of savings and CDs. The increase competition, combined with technological efficiency is huge for industry wide success. I want to emphasize the technological efficiency. Pre – 2008, access to information wasn’t as easy as it is today. If you were a consumer, and you attempted to rate shop, you had to travel to each location. Today, these banks can publish their rates digitally, which will make it easier for them to grow deposits and increase loan volume.
What does this mean for the US economy? It is very positive, if it leads to further divestiture by the large banks. Increased completion in the lending and deposit rate space will only save consumers money, or increase returns on their deposits. This in turn increases the velocity of money, or in simpler terms – more money will be in the economy, enabling consumers to spend more, which, increase profits for businesses, and drives up earnings and stock prices. It’s a huge win for all of us if this implies the start of something bigger in the industry. Fingers crossed!
Phil Your Day 