06/15/2010 05:12 am ET | Updated May 25, 2011

Banking in America: Swimming in the Deep End

It occurred to me that, somewhere along the way, people might be curious about understanding bigger banks in some context other than political vilification. If we are to be truly astute about America's future financial health, a more cogent approach to analysis is necessary. I've discussed the locally focused "know the lay of the land" competitive strategies of the smaller banks in the past, but today let's look at some examples from the buffalo herd of the big banks.

If you examine the map of the American banking landscape published by the New York Times, you'll see that the Western United States is dominated by a group of very big banks. They compete fiercely among each other to control vast swaths of the market. The leader in any given area typically has between 20 to 30 percent of the local market share. That leader is closely followed by one other big bank. The two local leaders are in turn pursued by a third player. By then you're near or north of half the local market. After that you finally begin to see the presence of the native regional banks that know the local area. Who are 1, 2 and 3? In most places this would be Bank of America, Wells Fargo and JP Morgan Chase. It's useful to ponder each of them a little.

Bank of America is by far the most successful of the whales. The most notable thing about Bank of America Corporation (BAC) is that they've been able to garner 1.5 to 2 times the deposit base of their rivals with half the number of physical branches in many territories. They fill in-between locations with ATMs and one of the most advanced integrated online banking systems on the planet. And they centralize many business functions. It adds up to a huge economy of scale advantage versus the competition. But it does mean that branch personnel are more like storefront clerks. Because of the massive need to assure compliance, decision support computers control most of the business choice outcomes. So consumers hardly ever interact with the decision makers behind their banking -- and BAC pays somewhat of a reputational price for this.

One should have no doubt that a business like BAC is playing for keeps. This vastly deployed commercial bank carries a gargantuan book of credit card exposure that it has not reduced to nearly the same degree as some of its competitors; an interesting business retention strategy whose progress I continue to watch. They live with the lingering indigestion of having eaten Countrywide, which makes them one of the biggest targets of ire when it comes to mortgage relief. They have ownership of one of the potential tools to restart the mortgage market if a workable way can be found to do so. But the thing I'm watching about Bank of America is their integration within their Merrill Lynch offices to assist brokerage clients with banking needs. It raises an interesting barrier to entry in what had been traditionally thought of as an equal access arena for all banks to a brokerage's clients to a new level of propriety. Love them or not for what falls through the cracks in their systems, but it's not just bankers who understand what they have done anymore.

One side note to ponder. Whales this big, involved in such a broad range of activities, would require the efficient and coordinated power of the FDIC, SEC and FINRA to be regulated in a way that proactively prevents the outbreak of future systemic risks. I'm just wondering out loud about how the flow of practical enforcement might actually work for real in a new and better Too Big To Fail-proofed universe. Somebody in Congress should insist on a simple, plain-language diagram that can be shown to the American people explaining this with at least a couple of practical examples demonstrating how new laws would ensure we've actually improved national risk prevention. We need to know this isn't just more deck chair shifting that enables the next "financial innovation" to bite us again.

Now, back to our whales. Consistently number two in the Wild West are the stagecoach drivers at Wells Fargo. Wells Fargo & Company is really the only native western bank among the big three. BAC's bank holding company (BHC) registration number is the one that belonged to its parent in Charlotte, before that long ago merger when Bank of America NT&SA, San Francisco, as so many remember it, went the way of the Dodo. Well Fargo & Company typically has a larger branch count per regional market, with each branch averaging about half the deposit base of their B of A counterparts. It's not as mathematically efficient, but it does seem to contribute to a general perception that Wells has more "personality"; it's enough that they actually come out on top for market share in certain locales. What's also important to note about Wells Fargo is that it's one large institution that actually earns an "A" bank stress index rating within the IRA analytical rating system. One of the things I'm waiting to see when the final 1Q2010 FDIC numbers come out next month is to what degree these combinations of established personae and quantitative performances do or do not affect the movement of deposits. It bears greatly on assessing the business outlook for other "established native" banks as the landscape of Main Street finance continues to evolve.

And finally there's JP Morgan Chase, "seeking life west of the Hudson River." They're the catch-up ball players, putting the pieces back together after acquiring a sizable weakened asset. It's a challenge, but not one beyond the acumen of the likes of Jamie Dimon, who, as Simon Johnson has pointed out, is so smart he's dangerous. Still, branch banking in the provinces is a long way from massaging the trading and investments side of the economic capital of a Maiden Lane debutante bank. They've tried to advertise the imprimatur of their New York Wall Street heritage -- which they've discovered impresses Westerners not so much -- but they now seem to be concentrating on good old-fashioned "toaster value" biz dev. I think it's important we all watch banks like "Chase West," because they typify a wave of banks migrating out of their home grounds into new territory as a result of FDIC-assisted acquisitions across the entire country. There will be more of them competing for our attentions soon enough.

Do think about these things whenever you see bank commercials on the air. It's important that people see the nuts and bolts business motives going on behind the curtains. The era of blind faith in granite towers is gone.