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US Commercial Banking Hobbles

The U.S. corporate banking industry is struggling a bit, according to Wednesday (Sept. 30) reports from TheStreet, and the reasons are twofold.

According to reports, commercial banks in the nation are seeing smaller returns on equity. Coupled with the fact that the market overall is shrinking in size, the latest stats could signal bad news for corporate bankers.

The number of players in the space is on the decline because there are fewer small commercial banks, reports said. It’s a trend that may be the cause of an emerging dependence on technology, rendering many smaller banks unable to afford such tools. Smaller banks, too, are struggling to keep up with regulations, reports added.

Just two out of the ten largest U.S. commercial banks — U.S. Bancorp and Wells Fargo — saw a return on shareholders equity above 10 percent, reports added. Together, the most recent data from the banks suggests that they “are not performing that well, and their business model is facing an uncertain future,” the report read.

Plus, the industry is currently experiencing an exodus of players, one report described as “startling.” In 1995, there were nearly 10,000 commercial banks at play; as of the end of June of this year, reports said, there were just 5,472. That’s an average of 223 banks leaving the market every year for the past 20 years.

Much of this has to do with ongoing low interest rates and reduced interest margins. Another aspect of the industry, however, is the shifting nature of the market; while there are fewer banks, there are more large banks with assets greater than $1 billion. The ten largest banks hold the vast majority of overall cash within the sector, the Federal Reserve said.

Lastly, reports pointed to the shadow banking and alternative lending sector, which has been placing pressure on traditional banks. Reports predicted the continuing shrinkage of the commercial banking sector, especially as electronic banking and alternative FinServ players continue to emerge.

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