Money,Banking and finnancial marketsAn industry with a large number of small firms is usually through to be highly competitive. Is that supposition true of the banking industry? What are the cost...

Money,Banking and finnancial markets

An industry with a large number of small firms is usually through to be highly competitive. Is that supposition true of the banking industry? What are the cost and benefits to consumers of the current structure of the U.S. banking industry?

Expert Answers
readerofbooks eNotes educator| Certified Educator

When it comes to banking, there is quite a bit of competition among each other. They have to compete for customers.However, they are all starting from a position of wealth and considerable power. For example, think of the interest rates that they charge on credit cards. And now consider the interest they pay on accounts! It is robbery in many ways. This is why Elizabeth Warren wants the government to regulate this area. In light of this, I would say that they are not competitive enough.

belarafon eNotes educator| Certified Educator

I'm with #3; there are any number of small banks still operating as well as local credit unions. I don't personally know anyone who uses a traditional bank; everyone has switched to credit unions, which are legitimately competitive with the banking system. Still, the more options, the more the bank or credit union has to appeal with their service; I avoid BOA and others because of their failure to put the customer first.

litteacher8 eNotes educator| Certified Educator
In many ways, the banking industry is actually competitive. They all offer the same basic services, checking accounts and savings accounts and ATM services, and so on. They will compete in terms of fees and extra services, like online banking. I some ways, they aren't competitive though. Banks can be like the airlines. Of one begins charging fees, others will too and they protect each other.
pohnpei397 eNotes educator| Certified Educator

This is really only true if there are no economies of scale in the industry.  If there are economies of scale, then larger firms are able to provide goods or services for lower prices.  I would argue that there are economies of scale in banking that make it easier, for example, for large banks to offer cheap credit cards to their customers.

accessteacher eNotes educator| Certified Educator

It depends a lot on the context, as other editors above have noted. The concept of the economy of scale is key, as we have found that larger businesses without a small number of separate wings are actually able to do things cheaper and more efficiently because of their size and financial clout.

vangoghfan eNotes educator| Certified Educator

Much depends upon how strong the anti-monopoly and anti-price-fixing legislation is that applies to the banks. Banks are in an especially good position to lobby politicians so that the marketplace is less competitive than it might otherwise be.