Bank Consolidation, Credit Caps, and Europe's Geopolitical Autonomy

Key Quotes

"So the consolidation that was brought on by national interstate banking under the Clinton administration when they signed that law has really led to the consolidation. As a result, what has happened is that the banks have become more efficient, which has led to much better profitability, while at the same time their capital levels are meaningfully higher than they were 20, 30 years ago and, of course, since the financial crisis."

Gerard Cassidy explains that the banking industry has undergone significant consolidation due to legislation like national interstate banking. This consolidation, according to Cassidy, has resulted in banks becoming more efficient and profitable, while also strengthening their capital reserves compared to previous decades.

"Profitability would be impacted significantly if rates came down for 10% for a year, especially for the credit card lenders, because when you think about it, let's assume the cost of funding is 3 to 4%. Credit losses for the higher-risk credit customers, those are the lower FICO score, they run anywhere from 5 to 7%. So you're losing money without even talking about operating expenses."

Gerard Cassidy argues that a proposed 10% credit card rate cap would negatively impact bank profitability. Cassidy details that with funding costs and credit losses for riskier customers, banks would be operating at a loss, especially credit card lenders.

"The turnaround story that she has orchestrated has gone very well, and she should be congratulated for it, and the stock has reacted accordingly. Now they're going to be finished once Mexico's consumer banking business is spun off into an IPO sometime early this year. They're going to go from a turnaround story to a growth story."

Gerard Cassidy praises Jane Fraser's leadership at Citigroup, stating her turnaround efforts have been successful and reflected in the stock performance. Cassidy anticipates that after the Mexico consumer banking business IPO, Citi will transition from a turnaround narrative to a growth-focused strategy.

"Well, I think that if by normal we mean the old world, the sooner we smell the coffee, the better it is. The old world has gone. The question is whether the new world has to necessarily be one in which it is only the survival of the fittest, only the law of the jungle, or whether perhaps indeed there will inevitably and always has been and always will be an exercise of power, but that exercise of power can somehow be constrained by laws and rules and institutions."

Nathalie Tocci asserts that the "old world" order in international relations is over and a new paradigm is emerging. Tocci questions whether this new world will be solely based on power dynamics or if it can incorporate constraints through laws and institutions.

"Well, this is a really odd kind of situation here, because Europeans, starting with the Danes themselves and the Greenlanders, are more than happy to talk substance. So does the United States want a greater security presence in Greenland? No problem. Does the United States want greater access to Greenland's natural resources? No problem. But if it is not substance, if it is simply a question of territorial expansion, then that's kind of a conversation killer, right?"

Nathalie Tocci describes the situation regarding Greenland as unusual, noting that Europeans are open to discussing practical matters like security and resource access. Tocci points out that the conversation becomes difficult if the U.S. interest is perceived as territorial expansion rather than substantive cooperation.

"It certainly looks like that right now. Now, we certainly don't think that this is going to continue like this for the next quarter or half century as it did back then. So we're not poised for another period of absolutely exceptional growth like we had a century and a half ago. But certainly right now, I mean, looking back at the past nine months or so, it has been upside surprise after upside surprise."

David Seif observes that current economic conditions, characterized by GDP growth without significant employment increases, resemble a past era. However, Seif does not expect this trend of exceptional growth to persist for as long as it did historically, despite recent positive economic surprises.