Thread by @patio11

I think there are two sides to this story (about how large banks are gobbling up deposits and regional banks are flat or declining) and both of them are very technically-inflected: wsj.com/articles/the-b… (for further analysis, see here: crnrstone.com/insightvault/2… )

The sides:

In retail banking, historically you get accounts by having branches located near a customer's home, place of work, or along the corridor between those two places. The branch is the buy-in for competing for that household's money.

Branches are not cheap.

There exist economies of scale in branch-building and there exist efficiencies of management in running banks, but you could never dominate branches like Google dominates search.

But this assumes that your customer cares about having a branch to walk into.

People following me probably already know this, but many consultancies have billed many banks millions of dollars to tell them, proprietary information coming, millennials would rather do their banking on a good computer in their pocket than the bad computer at your bank branch.

And there exists *massive* economies of scale to building good banking mobile apps. The buy-in is formidable (software development is hard and the financial industry doesn't do itself favors on this score) but after you've solved it you can roll that out MUCH faster than branches

And if you *only* care about your deposit accounts to do pedestrian things like moving money from A to B, like most customers... why would you bother with any of the banks that either a) can't ship an app or b) can, but it's literally 2 stars on the app store.

Interestingly, some of the banks or proto-bank entities with the best apps can *also* be the most aggressive on deposit pricing; looking at CapitolOne and American Express in particular.

Speaking of deposit pricing:

Businesses have massive shedloads of money. They have much bigger money problems than households do. These problems come under the general heading of "treasury management" and include everything from managing payouts to having appropriate liquid funds to maximizing interest.

Treasury is an unsung competence at a lot of businesses, and generally viewed as a bit of a distraction from whatever they do well, so historically a quite common strategy was "Pfft, whatever, we'll keep most of it in our main checking account. That bank gets the deposits."

(Background common knowledge: banks will generally offer a trade like "We'll pay you a better interest rate on that deposit if you lock it into a certificate of deposit (CD) with us for a longer term; this guarantees us longer-term funding for writing longer-term loans.")

This was a sensible strategy for treasury folks when moving money around was friction-ful, but since they can now administer 8 accounts at different institutions about as easy as one account (remember: literally their job) on their own doesn't-suck-at-being-a-computer...

... they can afford to say "Wait, goodness, I have *ten million dollars* to place. It is *exactly* as easy to put it in a money market fund at $FOO as it is to buy a CD at your bank. The MMF *strictly dominates* your offering. Why. Would. I. Do. That."

Anyhow, a quote I like from the analysis article (linked above):

> Checking accounts have become "paycheck motels"--temporary places for people's money to stay before it moves on to bigger and better places.

For at least some consumers there is a precarity angle to that statement, but the classes which historically kept materially-sized balances in checking just have better options these days, and no particular social reason to let banks use them as a low-cost funding source.