The pace of U.S. bank failures, already low in 2014, will probably decline again in 2015. Some of the banks that had commercial real estate loan portfolio problems five years ago have seen their fortunes improve — either because borrowers got better footing in an improving economy or from making new loans in less troubled areas. At the same time, investors are less reluctant to put money into banking ventures and may be willing to take some initial losses that go with buying a troubled bank to gain the advantages that go with a business that is already up and running.
Looking farther ahead, I cannot be quite so optimistic. There are two trends that seem to be on a collision course. Banking is still an industry that desperately needs to cut costs, and there is a special emphasis this year on mobile apps that, it is hoped, will lessen customers’ reliance on bank branches. At the same time, there are also banks that are trying to expand rapidly. It is a truism in business management that the best time to expand your presence in a troubled industry is the year before it hits bottom. Dozens of bank executives and thousands of banking investors were convinced that 2009 was that year, and many of those ventures flamed out spectacularly in 2012 and 2013. Some of the very same dealmakers now think 2015 is the year to get into banking. They are, I believe, still at least four years too early. At the rate the industry is going, it needs another four to seven years of cost-cutting before it will make sense to chase customers the way the industry routinely did a decade ago. Growth in an era of cost-cutting is always a dicey business. Some of the most confidently expanding banks of 2015 will require some kind of rescue by 2018.