In the event of an economic downturn which would increase the risk of charges-offs and lower loan demand, an increasing percentage of noninterest income will help maintain the bank earnings momentum. Furthermore, legislation in the banking industry is on the verge of major change. Congress is considering revamping or completely repealing the Glass-Steagall Act. This will provide growth opportunities for many commercial banks which are currently limited in the amount of revenue they can generate from securities underwriting. The U.S. banking system is still highly fragmented despite the recent merger and acquisition activity.
Consolidation is a means of increasing efficiency, service levels, and product depth.
It is also a means of handling the increased competition. Not only do the money center banks compete with the growing superregional and other large commercial banks, they are competing with nonbank institutions providing financial services as well. However, intranational mergers and acquisitions provide little help for international competition. As in national competition, there are nonbank sources of financial services that are providing added competition. The more the world moves towards an open market economy, the more competition this industry will see.