More dominos waiting to fall in the US banking business: Aswath Damodaran

There are more dominos waiting Located in US Bankingwith banks that have grown the most in the past few years at the highest risk, according to Aswath Damodaran, a valuation educator and professor of finance at New York University’s Stern School of Business.

Damodaran tweeted: “There will be more dominoes that will fall, banks’ concentration (not profitability) will increase, systemic effects will remain small, market accounting rules will be tightened, regulators will add term mismatches and deposits sticking to the rulebook.”

But I also think that unlike in 2008, this crisis is more likely to redistribute wealth across banks than to create costs for us. Unlike in 2008, when you could point to risk-seeking behavior on the part of banks as the main reason banks failed, this arose because they were looking for high growth and failing to stick to first principles when it came to term mismatches, he said in a blog post.

Also read: JPMorgan buys First Republic Bank with third major US bank failure in two months

Damodaran said 2023 failed banks This will speed up the consolidation, especially if it is small Regional banks, with concentrated deposits Bases and loan portfolios are absorbed into larger banks with a more diversified structure.

For some, the merger is worrying because it raises the specter of banks facing less competition and thus charging higher rates. I may be naive, but I believe that as banks merge, they will struggle to maintain profitability, and perhaps even experience a drop in profits, as the most profitable sectors are eroded by disruptors from fintech and elsewhere. In short, the big banks may get bigger, but they may not make a bigger profit.”