There are more dominoes waiting to fall in the US banking business, and the banks that have grown the most in recent years are most at risk, according to the valuation guru and professor of finance at the Stern School of Business in New York University, Ashwath. Damodaran.
“There will be other dominoes falling, bank concentration (not profitability) will rise, systemic effects will stay small, accounting rules in the marketplace will tighten, and regulators will add duration mismatch and deposit stickiness to the rule book.” Damodaran tweeted. .
“But I also think that, unlike 2008, this crisis is more likely to redistribute wealth among banks than it is to create costs for the rest of us. Unlike in 2008, when risk-seeking behavior by banks could be pointed to as the main reason for bank failures, this one was triggered by the pursuit of high growth and a failure to adhere to first principles when deals with duration mismatches. he said in a blog post.
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Damodaran said the bank failures of 2023 will accelerate this consolidation, especially as small regional banks, with concentrated deposit bases and loan portfolios, assimilate into larger banks, with a more diverse structure.
“For some, that consolidation is concerning as it raises the specter of banks facing less competition and therefore charging higher prices. I may be naive, but I think that as banks consolidate they will struggle to maintain profitability, and perhaps even see profits fall as disruptors in fintech and elsewhere eat into their most profitable segments. In short, the biggest banks may grow, but they may not be more profitable,” he added.