In defense of big banks

The first fallacy is that the emergence of large, universal banks — combining commercial banking with investment banking — was an artificial or unnatural development. In 1990, there were 15,000 banks in the United States; this fragmented market meant that banks could not achieve economies of scale or easily serve clients on a national or global level.

The consolidation that took place was driven by the market’s needs and represented an evolution toward greater efficiency in banking, just as companies like Amazon, Starbucks and Home Depot brought efficiency to retail. Even now, the American financial services industry is far less consolidated than its peers across most of the developed world.

A second fallacy is that these large, universal institutions were primarily to blame for the financial crisis. As most serious observers acknowledge, a combination of bad lending and risk management by banks, poor regulation and ill-advised consumer behavior all played a role. None of the first institutions to fail during the crisis — Countrywide, Bear Stearns, IndyMac, Fannie Mae and Freddie Mac, Merrill Lynch, Lehman Brothers, the American International Group — were universal banks.