Is there an alternative approach? Do we need to have fewer and larger banks to compete internationally? Is it beneficial for banks to get bigger?
Here are the negative impacts of the consolidation of banks in recent years:
- concentration of risks
- overcharging of fees for banking services, i.e abuse of pricing power
- selling of bad structured products to earn commission
- impact of massive IT failure on cash withdrawals, i.e. the DBS event
Is there an alternative? America had a system of community banks that are connected by national banks. Perhaps, this is the answer. We should encourage a large number of community banks to serve the retail customers on basic banking services. They can be linked a few national banks who handle the commercial banking, foreign exchange, international trade and other services.
If there is a serious computer hiccup in a community bank, it will only affect their customers, and not a large segment of the population. This is an example of decentralising the risks.
Tan Kin Lian