Large & International Banks covers money-center, super-regional, custody and major foreign banks: the custody banks, plus banks worth at least $40 billion, or $10 billion for banks outside the United States. MoatScope covers 43 companies here. Seven have a wide moat and the other 36 a narrow moat; not one is rated without a moat.
How the industry makes money
Banks earn the spread between what they pay depositors and what they charge borrowers, plus fees from cards, payments, wealth management, investment banking and custody. The largest banks combine all of these: JPMorgan spans consumer and community banking, corporate and investment banking, commercial banking, and asset and wealth management, a breadth few competitors match.
Where the moats are
Switching costs appear in 33 of the 43 companies: customers rarely move the accounts their salaries, bills and business payments run through. Cost advantages appear in 29, above all cheap and stable deposit funding, and efficient scale in 22, most clearly in concentrated national markets where a few banks serve most of the country.
- JPMorgan Chase: scale and diversification across every major banking business.
- BNY: a custody bank whose business is safekeeping and servicing assets for institutions, which rarely move the assets they entrust to it.
- Bank of America and Wells Fargo: among the largest U.S. banks, with vast low-cost deposit bases.
- Royal Bank of Canada and Toronto-Dominion Bank: leading positions in Canada's concentrated banking market, with RBC the country's largest bank.
- HDFC Bank: retail and commercial banking across India, strengthened by its merger with its mortgage-lending parent.
The narrow-moat group includes Barclays, HSBC, Mitsubishi UFJ, Citigroup, Santander, UBS, BBVA, Bank of Montreal, CIBC and Northern Trust.
What wears moats down
Credit losses in a downturn can erase years of earnings, and interest-rate cycles squeeze the spread banks earn. Competition for deposits from online banks and money-market funds raises funding costs, capital rules limit how much banks can lend and return to shareholders, and payment platforms chip away at fee businesses.
What the quality scores say
The wide-moat banks range from 47 to 77 on MoatScope's quality scale, led by Royal Bank of Canada; the industry averages 53. Among narrow-moat banks, CIBC scores 68 while Citigroup scores 32.
What to watch
- Net interest margins as rates move.
- Credit quality and loan-loss provisions.
- Capital requirements and shareholder returns.
- Deposit growth and the cost of funding.
Moat ratings and quality scores on this page update as companies report. Price versus fair value for every company in the industry is in the screener.