Why should efficient lending decisions somehow be uniquely hard to make in a large corporation with many local branch offices?
We’ve seen massive consolidation in mobile phone networks (where local knowledge should arguably matter just as much for where to build the next tower), supermarkets (I’d assume preferences and spending habits to also vary widely), media, and many other areas of business.
What makes banking so special? And why in the US, but not in most other countries in the world?
And if it’s a question of not having too many “too big to fail” entities: Wouldn’t it then be better to have 20-50 Chases rather than 5 Chases that still concentrate a huge chunk of customers and a long tail of thousands of tiny banks?
Once a bank gets big enough, I think the main issue is risk. The long tail of tiny banks represents a certain customer type that is harder to model in an Excel model and is vetted through personal relationships. Consider one the "big" banks in that long talk - SVB. For a lot of startups getting banking services such ACH, or lending mortgages to founders backed by "paper gains" would be a nightmare for your classically trained big-four bank manager. Conversely, all the work thank bank manager would have to do in winning those deals, likely wouldn't get any benefit from the parent bank except for the bank charter and maybe a small bonus. It's better to be the CEO of a small bank with a highly differentiated order flow, then to fight your exec who lives 1000 miles away that won't let you lend to founder of DropBox because cloud storage isn't a dropdown in their excel spreadsheet.
The trouble is that the decisions can't be entrusted to the branch offices, so you wind up being a little stiff and inflexible and slow.
Banks have the issue with delegating power to give you money. From a distance I'd guess there is a real advantage to businesses of local banks and being able to work on personal relationships.
You never have a relationship with a big company, you are just an entry in a database interacting with an algorithm.
Easy. When you only exist in for example Manhattan, you don't have to deal with divergence laws against Calif, because you just not in Calif.
But when you have branches in NY and in Calif, laws just prohibited you to make different decisions for NY and Calif - all MUST be SAME.