One of my near-bedrock beliefs is that we’re living through
a period when the structure of the legal industry
is morphing before our eyes, setting up what I believe
will be a future pattern that may well endure for decades.
  Most recently, I wrote about this in "It’s
2015:   Do You Know Where the AmLaw 25 Are?"  (And
if you want a far earlier discussion, over a year old, check
this out.)

So what, again, is that emerging structure going to look
like? 

First, permit me to observe as an economist that the taxonomy
of stable, durable industry structures is not infinite—not
every structure that can be imagined exists.  Some
of the more fascinating industries, from a structural perspective,
are:

• airlines, with very high fixed and very low marginal
  costs, and classically perishable inventory;
• utilities, again with very high fixed generation-and-distribution-infrastructure
  costs and very low marginal costs of delivering an additional
  kilowatt or BTU—at least until generating capacity
  utilization begins to approach its maximum, when the
  least efficient plants must be brought online, suggesting
  in the future an increasingly flexible and time-sensitive
  component to pricing; and
• retailing, dominated both by enormous integrated chains
  (Wal-Mart, Target, Federated, Safeway, Home Depot, Staples,
  etc.) and mom & pop’s (your drycleaner, deli, coffee
  shop, shoe repair) with little inbetween.

But we don’t work in any of those industries.

The model I want to suggest—and this is entirely
by way of "thinking out loud," so I welcome reader feedback
even more exceedingly than is the normal case—is
that of financial services.

Consider the vast landscape of retail and investment
banking, credit cards, securities broker-dealers, mutual
fund complexes, and investment managers and hedge funds.  We
see essentially clusters of institutions at both ends of
the size spectrum:  Goldman Sachs, Citigroup, Bank
of America as global, dominant institutions with awesome
balance sheets and oceanic cash flows; and Lazard-Freres,
JP Morgan private banking, and two guys in Greenwich with
a hedge fund at the opposite end, deploying the primary
asset of sheer intellectual firepower.

There are many virtues to this industry structure.  On
one hand, the Fortune 500 and FTSE 100 can find their "peer
group," ready to serve their international needs with apposite
financial and human resources; and on the other hand the
Park Avenue widow can get her dog walked by her private
banker’s admin.

The pending acquisition of North
Fork Bancorp by Capital
One underscores the power of this structure.  To
be sure, there were highly deal-specific circumstances
powering that agreement, but the trend in financial services
across the board is for regional and mid-market players
like North Fork to disappear. 

In this case, North
Fork had a problem which for Capital One was an opportunity.   The
economic model of banking, since the Medici’s
if not earlier, is the simple one of borrowing cheaply
and short-term from depositors and lending dearly and
long-term to mortgagors et al. 

As The Wall
Street Journal put it:  "Like other regional
banks, North Fork has been grappling with a flat or inverted
yield curve, resulting in narrower difference between
long-term and short-term interest rates. That creates a difficult
situation for the banking business, which borrows money at short-term
rates and lends it at long-term rates — typically making a profit on
the spread between the two."  And as John Kanas, North Fork’s
CEO, said:  “In
the current economic environment, it is hard to imagine that yield curve
will improve any time soon.”  In other words, regional banks’ basic
economic model is broken.

But in the hands of Capital One, North Fork’s deposit
assets can be lent out not at low long-term mortgage rates
but at high credit-card interest rates—and Capital
One gets to pay lower interest for those assets than if
it had to go to the potentially volatile commercial paper
or corporate debt markets.

Back to the analogy for law-firm-land: 

• The Magic Circle, the New York "bulge bracket" firms,
  and the US’ other emerging international powerhouses
  (Baker & McKenzie, Jones Day, Latham, White &
  Case, et al.) will have global footprints and scalable
  teams to serve their corporate peers.
• The Boies-Schiller’s and Quinn-Emanuel’s of the world
  will serve their niche, boutique markets.  And:
• The future of regional, mid-size, full-service firms
  does not seem bright; it’s unclear what their natural
  client base is.

In other words, if you’re A Player, why go to North Fork
when you could go to BofA.  Likewise, if you’re seeking
truly personalized, one-on-one counsel, why go to North
Fork when you can go to JP Morgan Private Banking.  Even
if you’re in the middle—say, you or me—why
go to North Fork when next week you might be in California
or London and wouldn’t mind the familiar, fee-free, Citigroup
ATM logo on every other corner?

How do you
see this playing out?