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The Limits of Bank Convergence
Is the convergence of commercial and investment banks inevitable? Many commercial and universal banks would like to think so, and in fact they continue to grab an increasing share of the investment-banking market. But these institutions will truly threaten investment banks in their core franchise only by building superior investment-banking skills and capabilities, not by offering clients cut-price loans as a loss leader. Meanwhile, leading investment banks can retain their market position without resorting to large-scale mergers with commercial banks—if they ramp up to supply clients with credit selectively.
The take-away: Commercial and investment banking are not as complementary as conventional opinion seems to think. Banks in North America are likely to find that the current craze for bundling credit with investment-banking services will prove a cyclical fad rather than a winning long-term strategy.
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