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Comment by bobabooey02 | Hacker News Reader

Nah, it's just the nature of capitalism. Industries that require a large amount of startup capital lead to natural monopolies or duopolies. Those who cheat, skirt the law, or lobby to make getting into the industry harder do better than those who follow the spirit of the law. Board of directors exist not to create a balanced society, but to maximize returns on investment for owners and shareholders, and so will always behave as sociopathically as they can get away with. The government is supposed to regulate those industries, but because they buy off the government in the US, the duopoly-forming pressures continue unabated.

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>> That's what happens when you centralize banking...

> Nah, it's just the nature of capitalism. Industries that require a large amount of startup capital lead to natural monopolies or duopolies.

But is that true of banking? The nation has a long history of small banks. While they've had their crises too, I don't think there's any natural motivation for bank consolidation besides using scale to eek out efficiencies and to gain power and influence.

> I don't think there's any natural motivation for bank consolidation besides using scale to eek out efficiencies and to gain power and influence.

Motivation has nothing to do with it. The development of power and influence through asymmetric growth in the industry is enough for this to emerge. There are still small banks today, but it's no coincidence that the largest (and thus overall best performing) banks cheat the system. The best performing become large and powerful on their own.

But your assertion was that banking is an "industr[y] that require[s] a large amount of startup capital" such that it will "lead to natural monopolies or duopolies." The fact that you can have a small, profitable bank disproves that.

Two things here:

Capital is more than just money. It takes a lot to jump through the regulatory hoops, money requirements, and insurance costs while having competitive prices against other Banks and still make a profit.

Even if it was just a money issue, new banks do still require a fair amount of money for relatively little profit in an industry that is well established. If someone is going to put their capital on the line, why wouldn't they put it in a higher growth industry?

These don't make new bank creation impossible, just unlikely.

In the same thread you state "Nah, it's just the nature of capitalism. Industries that require a large amount of startup capital lead to natural monopolies or duopolies" as the cause of centralization of the banks. Then you go on and explain where the high-capital cost actually comes from:

"It takes a lot to jump through the regulatory hoops, money requirements, and insurance costs while having competitive prices against other Banks and still make a profit."

And yet you still blame capitalism?

I'm not blaming capitalism, just pointing out that in some industries, monopolies naturally form. If anything, I'm blaming the government for getting taken over by the rich instead of keeping the imbalances in line.

> If someone is going to put their capital on the line, why wouldn't they put it in a higher growth industry?

It happens. My parent's neighbor was involved in starting up a new small local bank a few years ago. Now they have three branches.

I don't understand your point. I think it's apparent to almost anyone that you need a fair amount of startup capital to start a bank. And when you go on to say:

>I don't think there's any natural motivation for bank consolidation besides using scale to eek out efficiencies and to gain power and influence.

Are efficiencies and power-seeking somehow not enough? I mean let's look at Standard Oil. What did Rockefeller do other than eek out efficiencies and try to gain power and influence? Efficiences are what defines a natural monopoly, we can't just throw it out.

Standard Oil is an interesting case. One of the things that made SO such a powerful monopoly (among many other things; I'm focusing only on business structure here) was the infrastructure it built up for transporting, refining, and selling oil. That is very capital-intensive, a situation a bit like (say) Comcast, whose businesses is protected by the large investments a competitor might need to make in laying fiber.

A good comparison might be shale oil companies, which largely are pretty small; Chesapeake, one of the most famous, has a market cap of 4.3B (so about the size of a tech unicorn). Shale oil companies, of course, are largely using oil and gas infrastructure built by years ago, so there isn't a competitive advantage keeping large companies afloat.

I think the parent is asking which of these examples banks are more like. Is there some sort of hidden infrastructure banks need to build before they're competitive—a total position database, or operating licenses in a bunch of markets, or an algorithmic trading platform—or can small banks largely compete with bigger banks? Like SO or CHK?

Small banks existed because anti-trust laws were enforced. After Reagan, anti-trust stopped looking at market share and only cared about consumer prices. Hence why we've seen a huge consolidation of capital resources in large firms and cities, because that's where the economies of scale are.

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