The four major banks in the United States are expected to capture the largest share of bank profits in nearly a decade, increasing pressure on small and medium-sized banks

The landscape of the American banking industry is quietly undergoing profound changes, with the market concentration and profit share of large banks continuing to rise.

On December 24th, Eastern Time, according to calculations by the Financial Times based on data from industry tracking agency BankRegData, the four largest banks in the United States—JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo—achieved a total profit of approximately $88 billion in the first nine months of 2024, accounting for 44% of the overall profit of the U.S. banking industry, marking the highest proportion for the same period since 2015.

Considering that there are over 4,000 banks in the United States, this 44% profit concentration is particularly striking. If the scope is expanded to include the seven banks with the largest deposit sizes (including US Bank, PNC, and Truist), their profit share rises to 56%, a significant increase from 48% in 2023.

Why Do Large Banks Have an Advantage?

It should be noted that this data comes from the financial reports submitted by banks to the Federal Deposit Insurance Corporation (FDIC). This data only pertains to the profit situation of banking entities within the United States. Different banks may include different business scopes in their reports; for example, JPMorgan Chase and Bank of America include investment banking and trading revenues in their data, while many smaller banks do not engage in these areas, further widening the profit gap between large and small banks.

Moreover, the current scale effect is becoming increasingly important in the banking industry. Faced with rising regulatory, technological, marketing, and operational costs, large banks can spread these costs across more customers, thereby gaining a competitive advantage. Large banks are continuously expanding their market share due to economies of scale, while small and medium-sized banks face survival pressures. At the same time, non-bank financial institutions are emerging as strong competitors to traditional banks.

Oppenheimer bank analyst Chris Kotowski pointed out that smaller banks find it difficult to compete with these giants in the face of high technology, marketing, and operational costs. For example, after the COVID-19 pandemic, many Americans moved from New York to states like Florida, and the national service network of large banks allows customers to avoid changing banks. In contrast, small banks struggle to provide interstate services, thus losing competitiveness.

It is noteworthy that the main competitors of large banks are increasingly coming from non-bank institutions, including private credit companies that offer similar banking services. For instance, financial institutions like Apollo, Affirm, and Rocket Mortgage have become significant players in providing loans to businesses, homebuyers, and consumers, even though these loans are typically funded by banks. Currently, the proportion of home loans managed by non-bank institutions in the U.S. has surged from 11% in 2011 to over 50%.

In addition to traditional non-bank financial institutions, tech giants have also begun to venture into the financial services sector. JPMorgan Chase CEO Jamie Dimon specifically mentioned in his annual shareholder letter that tech giant Apple is "effectively" acting as a bank by holding, transferring, and lending funds

Calls for Banking Industry Consolidation

The U.S. banking system has historically been particularly fragmented due to restrictions on interstate banking, which were gradually relaxed only after the 1980s. In this context, there are numerous small and medium-sized banks, but their competitiveness is limited. In recent years, as market concentration has increased and the dominance of large banks has strengthened, calls for further consolidation of small and medium-sized banks have surged again.

Bob Diamond, former head of Barclays and current head of an investment company, predicts that the number of banks in the U.S. could decrease by more than half in the next three years. However, in recent years, merger and acquisition activities in the banking industry have slowed down, mainly due to regulatory policy impacts. Nevertheless, there is hope in the industry that the Trump administration may adopt more lenient policies, and whether consolidation will accelerate due to policy adjustments remains to be seen