{"id":11511,"date":"2023-05-20T19:39:31","date_gmt":"2023-05-20T23:39:31","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/goldman-sachs-ceo-david-solomon-theres-more-banking-consolidation-to-come\/"},"modified":"2023-05-20T19:39:35","modified_gmt":"2023-05-20T23:39:35","slug":"goldman-sachs-ceo-david-solomon-theres-more-banking-consolidation-to-come","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=11511","title":{"rendered":"Goldman Sachs CEO David Solomon: There’s More Banking Consolidation to Come"},"content":{"rendered":"
\n

\n Goldman Sachs
\n CEO David Solomon has a pretty clear view of what\u2019s going to happen in the banking sector, which has been repeatedly roiled this year.<\/p>\n

\u201cThere will have to be consolidation, there will have to be adjustment, and people will have to rethink their business models,\u201d Solomon said to me unequivocally in an interview on Thursday.<\/p>\n

\n

Soaring interest rates and the 2022 collapse of crypto (which has since partially recovered) precipitated bank runs and, ultimately, a number of high-profile bank failures this year, including Silicon Valley Bank, Signature, and First Republic.<\/p>\n

Solomon\u2019s remarks came the day before a CNN report citing unnamed sources who claim Treasury Secretary Janet Yellen told a meeting of big bank CEOs that more consolidation might be necessary. Bank stocks fell on the news. The SPDR S&P Bank exchange-traded fund (KBE) closed Friday down 1.6%.<\/p>\n

While the Fed\u2019s rate hikes have changed the game for banks, says Solomon, some of this disruption was years in the making.\u00a0<\/p>\n

\u201cThere\u2019s no question that the very, very swift change in monetary policy and in the Fed\u2019s policy rate has had an implication,\u201d he says. \u201cIt\u2019s created asset liability management issues and interest rate management issues for financial institutions.\u00a0 But I think there are broader secular shifts. For the last 15 years money has basically been free. It really didn\u2019t matter where you left your money. Now we have a policy rate, that\u2019s at 5%. With digital banking, people can move money with a lot less friction.\u201d<\/p>\n

Solomon acknowledges the banking business has already consolidated, but predicts there is more to come and suggests that the myriad regulators who oversee banks will play a key role in the process.<\/p>\n

\u201cIf you go back 25 years ago, there were 13,000 banks,\u201d he says. \u201cToday they\u2019re a little over 4,000. I think you\u2019re gonna continue to see consolidation. It\u2019ll be interesting to see what kind of policy decisions are made around regulation for institutions that are, say, between $100 billion of assets and $700 billion of assets.\u201d<\/p>\n

Solomon noted that costs are rising in the banking business\u2014costs that hit smaller institutions disproportionality.<\/p>\n

\u201cThere are also headwinds for midsize and regional banks that large banks have faced for a long time around technology costs, regulatory costs, etc, which can challenge those business models,\u201d he says. \u201cScale makes you more competitive. There could be a 100 to 300 basis points of ROE [return on equity] erosion. For banks below $100 billion, the headwinds could be even more significant.\u201d<\/p>\n

To Solomon it appears that problems in the bank sector were more about the tide going out, exposing some scantily-clad bathers.\u00a0<\/p>\n

\u201cWhat happened here accelerated some of that or shined a brighter light on the industry and some of the challenges that already were existing under the covers,\u201d Solomon says.<\/p>\n

Write to Andy Serwer at andy.serwer@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Goldman Sachs CEO David Solomon has a pretty clear view of what\u2019s going to happen in the banking sector, which has been repeatedly roiled this year. \u201cThere will have to be consolidation, there will have to be adjustment, and people will have to rethink their business models,\u201d Solomon said to me unequivocally in an interview […]<\/p>\n","protected":false},"author":1,"featured_media":11512,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-11511","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nGoldman Sachs CEO David Solomon: There's More Banking Consolidation to Come | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Goldman Sachs CEO David Solomon has a pretty clear view of what\u2019s going to happen in the banking sector, which 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