4 ms·

But what is the competitive advantage to be had between a regional bank and a megabank? I kind of love my megabank(and there are quite a few megabanks too). I c

by mym1990 4y ago

But what is the competitive advantage to be had between a regional bank and a megabank? I kind of love my megabank(and there are quite a few megabanks too). I can expect a branch to be in a foreign country, it provides a pretty great mobile user experience, it is well capitalized, the in person customer service has been great as well. Is it that less competition allows for companies like Wells Fargo to take advantage of their customers on a large scale? Is it that regional ones can provide fewer fees?

haarts 4y ago
Where are you banking?!?
- mym1990 4y ago
  It might have something to do with me being on the more chill side of things when it comes to customer service or other issues popping up. I'm pretty non-confrontational. I was also on the front lines of customer service for a while, those people have to deal with a lot, so I don't like to pile on.
Red_Leaves_Flyy 4y ago
Capitalism 101 explains that the consolidation of capital is necessary to maximize the capital extracted from customers. Basing our entire economy on a few average people handling the assets of billions is bound to go disastrously wrong. As we have seen cyclically for decades now. Does a bank exist that hasn’t knowingly laundered organized crime money, paid bribes, or otherwise engaged in substantial white collar crime? I cannot find one. Credit unions are superior and their disparate ownership structure is a key reason why.
- specialist 4y ago
  > maximize the capital extracted Cause and effect may be the reverse. Capitalism simplifies and commodifies, to extract more of the surplus. Consolidation is often rationalized with the goal to "reduce redundancies" (and passing the "savings" onto consumers, naturally).
  - Red_Leaves_Flyy 4y ago
    It’s an ouroboros, a cancer. One leads to the other and back again until everything has been extracted and the house of cards collapses in on itself and the survivors fight over the scraps to repeat these mistakes over again. The sooner mindless growth is reigned in and economic targets are forcibly aligned with reality, involving hard reality checks for very powerful and very despicable (subject of many articles trending on HN this past week) the better we’ll all be.
- mym1990 4y ago
  Capital is only one side of the coin, competition is the other. Competition ultimately drives capital distribution.
  - Red_Leaves_Flyy 4y ago
    >“The unbridled, competitive free markets that the Right cherishes don’t exist today. They are a myth.” Furthermore, “The Left attacks the grotesque capitalism we see today, as if that were the true manifestation of the essence of capitalism rather than the distorted version it has become.” https://www.cato.org/regulation/fall-2019/myth-capitalism https://www.cato.org/regulation/fall-2019/myth-capitalism I’ll posit that this am academic flight of fancy or distinction without a material difference. The fact is there’s no meaningful competition in the American economy, whether it’s called capitalism or socialism for the rich and debt peonage for the rest.
SenHeng 4y ago
As someone that lives in a rural community, the national mega bank wouldn’t offer me a mortgage because they didn’t understand the local market, whereas the regional bank was the one most people living here got their mortgages from. Particularly business loans.
- chadash 4y ago
  I'll add another example. I have a friend who lives in the Boston area and bought an old home about 10 years ago with the intention to gut renovate it. He didn't have enough cash to pay for the renovations without a loan, but the likes of Chase, Wells Fargo and Bank of America generally don't want to deal with mortgage loans like this, because 1) it's a different workflow... the bank gives you money piecemeal as construction proceeds rather than all at once and 2) the bank is basically fronting you the money based on what your home is going to worth when it is done. For example, say I buy a home for $400k and gut renovate it for $200k. Let's say that the specific renovations are going to improve the value of the home, but it's hard to know by how much. If I go to Chase, they will gladly lend me 80% of the $400k ($320k). But Then I need an $80k down payment + $200k for renovations, or $280k cash on hand to make this work. If I go to a smaller bank that doesn't do things as algorithmically and knows the local market, they might say "hey, we're gonna give you the $320k down payment and then we think that in that area of Boston and based on what you are doing, the house is going to be worth $150k more when you finish renovations, so we're gonna finance 80% of that $150k as well ($120k). You are still going to need to prove that you have your $80k down payment + $30k (20% of $150k) + $50k (the difference between what renovations cost and what they will add to value of home), or $160k total. So in this example, I need to have $160k in the bank if I want to make this whole transaction work with Regional Bank X, whereas with Chase, I need $280k.
  - ericmay 4y ago
    Genuine question is that more to do with the regional bank knowing the market or more to do with JPMorgan Chase having more stringent regulatory requirements and controls? Maybe a little of both?
    - 4y ago
wayne 4y ago
Examples: (1) One reason SVB did well is it understood startups. If your startup just raised a large round and needed a small loan, you were more than good for the money, but most banks would scoff because your business didn't have a long record of profits. (2) The "simple" thing of having a no-fee, no-minimum checking account with a convenient ATM you can use without fees is something we can take for granted in larger metro ares; in many places your local regional bank may be your only choice.
- mym1990 4y ago
  Why would a startup need a small loan after raising a large round?
  - hedora 4y ago
    - Corporate expense cards - Amortizing real estate costs into the future to get to a stable cash flow. - Rainy day funds (The last one is a risk to the lender, but can be low risk and profitable on average for the lender, as that part of SVB was.)
  - eddsh1994 4y ago
    Before the money is actually in the bank but is reliable because SVB partners with the VC firm responsible for leading the round who vouches?
jerf 4y ago
The one I hear about the most is service. Large, do-it-all banks don't have a lot of motivation to care about you and your $100,000 bank account & half-a-million mortgage. They've got corporate accounts to service against which yours is a mere rounding error. A smaller local bank will find you to be big, valuable customer to keep around. This is a general economic principle. To put it into an HN context, this is why Google, Amazon, Facebook, Microsoft, and such aren't the only tech companies. When they sit down to spend a dollar, they do an analysis and put it into the place that will make $1.60 (tech companies still have absurd return ratios compared to the rest of the world even after the last year). It doesn't make any sense for them to put it where they will make $1.30. It doesn't matter how big they get or how much money they have, that analysis always holds true. This is why Google shuts down so many things. Even being profitable isn't enough for them, it has to be wildly profitable and at scale to compete with "making ads better". It is also why it is perfectly rational to be distrustful of anything Google puts out and fear it being shut down. It is not a transient corporate culture thing, it is a systemic issue with where their profit comes from. And yet it is rational for them to float out various things as probes to see if there's some huge profit for them to tap into, even as total long shots. Meanwhile, other smaller companies can happily survive and thrive on that $1 -> $1.30 return, and then themselves be too big to worry about a $1->$1.13 that a startup may thrive on. There are some other reasons why One Big Company isn't actually a practical outcome, but this is one of them, and the one relevant to this discussion. It applies to tech companies. It applies to the retail industry; this is why Wal-Mart and the fancy boutique downtown import shop can still coexist, even today. It applies to the auto industry, which is why your local auto dealer may service a local business' 10-car fleet but there will be another company servicing huge fleets. And it applies to banks. This does not mean a large bank is obligated to be negligent of you, it just mean that there's a pretty strong pressure that is hard for them to resist. Strong internal leadership may push the consumer branch to be friendly as a sort of advertising mechanism for the rest of their bank, because you never know what individual will be in charge of directing a large corporate account in the future. But they'll be vulnerable to the next MBA to come along and cut that cost and boost short term profits, and who will have moved up before the long term costs come in.
deleted 4y ago
[deleted]
deleted 4y ago
[deleted]
hedora 4y ago
In the current system, a loan underwriting office can screw up and deny a loan, and it is no big deal. With one big bank, the same error means someone will never be able to buy a house/car/etc. Also, not all banks offer all products. Many of the big megabanks product portfolios are missing fairly common financial instruments

haarts 4y ago

Where are you banking?!?

mym1990 4y ago
It might have something to do with me being on the more chill side of things when it comes to customer service or other issues popping up. I'm pretty non-confrontational. I was also on the front lines of customer service for a while, those people have to deal with a lot, so I don't like to pile on.

Red_Leaves_Flyy 4y ago

Capitalism 101 explains that the consolidation of capital is necessary to maximize the capital extracted from customers. Basing our entire economy on a few average people handling the assets of billions is bound to go disastrously wrong. As we have seen cyclically for decades now. Does a bank exist that hasn’t knowingly laundered organized crime money, paid bribes, or otherwise engaged in substantial white collar crime? I cannot find one. Credit unions are superior and their disparate ownership structure is a key reason why.

specialist 4y ago
> maximize the capital extracted Cause and effect may be the reverse. Capitalism simplifies and commodifies, to extract more of the surplus. Consolidation is often rationalized with the goal to "reduce redundancies" (and passing the "savings" onto consumers, naturally).
- Red_Leaves_Flyy 4y ago
  It’s an ouroboros, a cancer. One leads to the other and back again until everything has been extracted and the house of cards collapses in on itself and the survivors fight over the scraps to repeat these mistakes over again. The sooner mindless growth is reigned in and economic targets are forcibly aligned with reality, involving hard reality checks for very powerful and very despicable (subject of many articles trending on HN this past week) the better we’ll all be.
mym1990 4y ago
Capital is only one side of the coin, competition is the other. Competition ultimately drives capital distribution.
- Red_Leaves_Flyy 4y ago
  >“The unbridled, competitive free markets that the Right cherishes don’t exist today. They are a myth.” Furthermore, “The Left attacks the grotesque capitalism we see today, as if that were the true manifestation of the essence of capitalism rather than the distorted version it has become.” https://www.cato.org/regulation/fall-2019/myth-capitalism https://www.cato.org/regulation/fall-2019/myth-capitalism I’ll posit that this am academic flight of fancy or distinction without a material difference. The fact is there’s no meaningful competition in the American economy, whether it’s called capitalism or socialism for the rich and debt peonage for the rest.

SenHeng 4y ago

As someone that lives in a rural community, the national mega bank wouldn’t offer me a mortgage because they didn’t understand the local market, whereas the regional bank was the one most people living here got their mortgages from. Particularly business loans.

chadash 4y ago
I'll add another example. I have a friend who lives in the Boston area and bought an old home about 10 years ago with the intention to gut renovate it. He didn't have enough cash to pay for the renovations without a loan, but the likes of Chase, Wells Fargo and Bank of America generally don't want to deal with mortgage loans like this, because 1) it's a different workflow... the bank gives you money piecemeal as construction proceeds rather than all at once and 2) the bank is basically fronting you the money based on what your home is going to worth when it is done. For example, say I buy a home for $400k and gut renovate it for $200k. Let's say that the specific renovations are going to improve the value of the home, but it's hard to know by how much. If I go to Chase, they will gladly lend me 80% of the $400k ($320k). But Then I need an $80k down payment + $200k for renovations, or $280k cash on hand to make this work. If I go to a smaller bank that doesn't do things as algorithmically and knows the local market, they might say "hey, we're gonna give you the $320k down payment and then we think that in that area of Boston and based on what you are doing, the house is going to be worth $150k more when you finish renovations, so we're gonna finance 80% of that $150k as well ($120k). You are still going to need to prove that you have your $80k down payment + $30k (20% of $150k) + $50k (the difference between what renovations cost and what they will add to value of home), or $160k total. So in this example, I need to have $160k in the bank if I want to make this whole transaction work with Regional Bank X, whereas with Chase, I need $280k.
- ericmay 4y ago
  Genuine question is that more to do with the regional bank knowing the market or more to do with JPMorgan Chase having more stringent regulatory requirements and controls? Maybe a little of both?
  - 4y ago

wayne 4y ago

Examples: (1) One reason SVB did well is it understood startups. If your startup just raised a large round and needed a small loan, you were more than good for the money, but most banks would scoff because your business didn't have a long record of profits. (2) The "simple" thing of having a no-fee, no-minimum checking account with a convenient ATM you can use without fees is something we can take for granted in larger metro ares; in many places your local regional bank may be your only choice.

mym1990 4y ago
Why would a startup need a small loan after raising a large round?
- hedora 4y ago
  - Corporate expense cards - Amortizing real estate costs into the future to get to a stable cash flow. - Rainy day funds (The last one is a risk to the lender, but can be low risk and profitable on average for the lender, as that part of SVB was.)
- eddsh1994 4y ago
  Before the money is actually in the bank but is reliable because SVB partners with the VC firm responsible for leading the round who vouches?

jerf 4y ago

The one I hear about the most is service. Large, do-it-all banks don't have a lot of motivation to care about you and your $100,000 bank account & half-a-million mortgage. They've got corporate accounts to service against which yours is a mere rounding error. A smaller local bank will find you to be big, valuable customer to keep around. This is a general economic principle. To put it into an HN context, this is why Google, Amazon, Facebook, Microsoft, and such aren't the only tech companies. When they sit down to spend a dollar, they do an analysis and put it into the place that will make $1.60 (tech companies still have absurd return ratios compared to the rest of the world even after the last year). It doesn't make any sense for them to put it where they will make $1.30. It doesn't matter how big they get or how much money they have, that analysis always holds true. This is why Google shuts down so many things. Even being profitable isn't enough for them, it has to be wildly profitable and at scale to compete with "making ads better". It is also why it is perfectly rational to be distrustful of anything Google puts out and fear it being shut down. It is not a transient corporate culture thing, it is a systemic issue with where their profit comes from. And yet it is rational for them to float out various things as probes to see if there's some huge profit for them to tap into, even as total long shots. Meanwhile, other smaller companies can happily survive and thrive on that $1 -> $1.30 return, and then themselves be too big to worry about a $1->$1.13 that a startup may thrive on. There are some other reasons why One Big Company isn't actually a practical outcome, but this is one of them, and the one relevant to this discussion. It applies to tech companies. It applies to the retail industry; this is why Wal-Mart and the fancy boutique downtown import shop can still coexist, even today. It applies to the auto industry, which is why your local auto dealer may service a local business' 10-car fleet but there will be another company servicing huge fleets. And it applies to banks. This does not mean a large bank is obligated to be negligent of you, it just mean that there's a pretty strong pressure that is hard for them to resist. Strong internal leadership may push the consumer branch to be friendly as a sort of advertising mechanism for the rest of their bank, because you never know what individual will be in charge of directing a large corporate account in the future. But they'll be vulnerable to the next MBA to come along and cut that cost and boost short term profits, and who will have moved up before the long term costs come in.

deleted 4y ago

[deleted]

deleted 4y ago

[deleted]

hedora 4y ago

In the current system, a loan underwriting office can screw up and deny a loan, and it is no big deal. With one big bank, the same error means someone will never be able to buy a house/car/etc. Also, not all banks offer all products. Many of the big megabanks product portfolios are missing fairly common financial instruments