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Banking: Lessons from America

While US regional banks are thriving, European banks of a similar size, in similar economies, are the focus of concern. If they want to survive in a rapidly changing eurozone, they might do well to take a look at provincial America.

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Illustration: Paul Daviz

In Lombardy and Ohio, Flanders and Pennsylvania, there are banks barely known to one another but that share many illuminating similarities and differences. Meet the European and American mid tier. Shunning global ambition, all have core deposit businesses in one or two geographic corners of a developed continent, even if they sometimes straddle a state border, whether it runs between Spain and Portugal or Georgia and Florida. 

These regional banks seem to be in something of a sweet spot in terms of their geographic and business focus, like smaller versions of Wells Fargo, or Lloyds Banking Group in the UK. They are all banks that have sought success from a core local business, with low capital costs. 

Even before November’s presidential election, all but one of the big US regional banks (Rhode Island-based Citizens) traded above book value. Meanwhile, bigger peers with international businesses, Citigroup and Bank of America, traded below book. 

Despite a generally difficult few years in banking, the typical US regional banks’ return on equity remains, like that of Lloyds and Wells Fargo, comfortably above 10% (again, Citizens, until recently part of RBS, is a notable exception).

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