Big banks' balance sheets will swell after the recent turmoil – and that could be bad news for Americans, ex-Barclays boss says

• Balance sheets at big banks will swell this earnings season, ex-Barclays CEO Bob Diamond has said.
• The expects Americans to have pulled their funds from regional banks after recent turmoil.
• But those outflows could push up banking costs overall, he told Bloomberg TV.

Wall Street banks could be about to give their shareholders a pleasant surprise - but the likely growth in their balance sheets is bad news for ordinary Americans, according to Bob Diamond.

The former Barclays CEO expects the biggest lenders in the US to reveal this earnings season that their balance sheets have swelled, after customers switched deposits out of smaller banks facing high-profile struggles.

That rush of inflows could concentrate risk in a few lenders and push up costs for consumers, said Diamond, now the CEO of investment firm Atlas Merchant Capital.

"To the extent that you see deposits move just into the larger banks and we get more and more concentration, there's not only more risk in the system, but more importantly, there's less competition and less service for small businesses and communities," he told Bloomberg TV on Tuesday.

The likes of JPMorgan, Bank of America, and Wells Fargo are expected to post first-quarter 2023 earnings over the coming week. Those will offer investors a chance to gauge how those big banks fared through March's banking turmoil, which arose from the collapse of California lender SVB Financial.

US customers flooded Wall Street banking giants with billions of dollars' worth of deposits in the days after SVB failed last month, according to a Reuters report that cited sources familiar with the matter.

Americans pulled their funds from smaller lenders in massive amounts thanks to Main Street's fear that SVB's collapse would spread stresses across the US regional banking sector, and eventually lead to the failure of more banks.

Diamond — who ran Barclays between 2011 and 2012 before resigning over an interest-rate rigging scandal — believes big banks' trading departments will have benefited from the turmoil, seizing on volatility for both stocks and US Treasury bonds to deliver strong returns.

"I think we're going to get a positive surprise by the amount of business that's moved from small banks to the larger banks — not just deposits, but people opening up more and more accounts," Diamond told Bloomberg.

"I think we'll get a pleasant surprise by the trading revenues. Whenever you see this much volatility in the securities market and this kind of movement in US Treasury yields and rates, the banks should do very, very well," he added.

But what's good for the banks isn't necessarily good news for the US as a whole, according to Diamond.

He noted that the US has thousands of regional lenders. A concentration of deposits in the hands of a few large lenders would damage most of those institutions, by reducing competition and pushing up banking costs for the average American.

"We have 4,500 banks in this country," Diamond said. "No other country has a banking system like the US."

"The positive impact that has by providing a better cost structure to lending, to farmers, to small communities, to regions … the competitive nature of those 4,500 banks is very very positive in terms of reducing the overall cost to the consumer," he added.

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