As the economy brightens and capital issues resolve, one question is whether banks will now step out of the shadow of the so-called shadow banking system.
In separate investor presentations this month, the chief executives of two banking powers based in the southeast offered competing views on the issue.
Generally defined as the constellation of securitization vehicles, broker-dealers, money market mutual funds and the like that competes with traditional depositories, the shadow system cut banks' share of lending in half over the final 25 years of the 20th century.
BB&T Corp. CEO Kelly King predicted that the reversal of disintermediation — the process by which banking companies' share of financial sector assets dropped from about 60% in the mid-1970s to about 30% during the past 10 years, according to data from the Federal Reserve — would be "huge."
"We're now getting ready to go through a couple of decades where" the banking industry will "get most of that market share back," he said, arguing that nonbank competitors lack the wherewithal to meet risk retention requirements.
In mortgages, "we're seeing clients come back," King said. "We'll get more loans, better quality loans, better priced loans."
Capital One Financial Corp. CEO Richard Fairbank argued, however, that while deposit funding is essential, traditional banks — "all the way up to regional banks" — lack a proportional capacity to produce assets and are naturally "unbalanced."
He predicted a wave of consolidation as banks gradually "come to terms" with their predicament, and argued that his company, with its national lending platforms, is positioned to benefit.
"What happened to the assets? The assets were taken off the shelf of banks over the last 20 years by national players like Capital One and so on in many of the consumer businesses," Fairbank said. "A lot of it was taken away by the" government-sponsored enterprises and "I don't see any prospect any time soon for that going in the other direction."
