Banking Has Become an Oligopoly Instead of a Competitive Business -- And That's Really Bad News for Us 99%

www.alternet.org

October 11, 2011 |

Some folks have responded to Bank of America's announcement of a new $5 per month fee on debit cards with a glib, "If you don't like it, just pick another bank. It's a free market, baby!" They say that competition will punish BofA for its evil ways.

Sounds easy enough. Except for one small problem.

Banking is not really a competitive industry. In reality, it's more like an oligopoly -- a scenario in which an industry is controlled by a small number of firms. An oligopoly is a lot like a monopoly, where one firm controls the whole show. Only in an oligopoly, you have two or more firms calling the shots, and they love to do things contrary to the notion of a free market, like, say, colluding to raise prices. There are a few common signs that tell you when competition has left the building in a given industry. See if any of these look familiar.

The last time big banks blew up the economy, causing the Great Depression, they got broken up. Tight regulation protected small banks, so they could get in on the action. But a massive trend of consolidation in the industry starting in the mid-'80s shrank the total number of banks in the United States as bigger banks gobbled up little ones. Result? The biggest banks control a larger and larger share of deposits.

Concentration of deposits is one measure -- perhaps the best measure -- of competition in the banking industry. The number of depository organizations in the U.S. fell from 15,416 in 1984 to 8,191 in 2001, a drop of 46.9 percent. The share of deposits held by the biggest five banks swelled to 23 percent in 2001 from just 9 percent in 1984.

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