NEW YORK (TheStreet) -- Citigroup  (C) , JPMorgan (JPM) , Bank of America (BAC) , Wells Fargo (WFC)   and other mega-banks face a long-term risk of disruption, according to Mohamed El-Erian, formerly of Pimco and now the chief economic adviser for Allianz. 

The economist told TheStreet TV that while the majority of Americans will continue to use these and other large financial institutions for their banking needs, that majority is going to shrink over time. 

More consumers are shifting to new technologies and peer-to-peer funding to do business, and other platforms will continue to be developed, he explained. If the big banks don't adapt, the group will face disruptions from "smarter technology that will bypass many of the established institutions," he told TheStreet's Dan Freed while attending the CME Global Leadership Conference in Naples, Fla.

JPM Chart
Wells Fargo WFC and JPMorgan JPM data by YCharts

How will these banks adapt? That remains to be seen, El-Erian said. But he does expect these banks to shrink over time because of regulation and "natural market" forces. 

He warned regulators must be careful aboub being too restrictive with the banks. As it is they're limiting what the institutions can do and making it more expensive to do business because of higher capital requirements. 

On the "natural market," the economist said consumers and investors want the banks to take fewer risks to prevent another financial collapse. Many investors want the banks to become "utility-like instruments," he said. 

But if the banks take drastically less risk, lending will dry up and have a negative impact on the economy because financing is the key to economic expansion, El-Erian said. 

El-Erian said regulators must also be aware of where the risk is moving. Just because the banks are taking less risk, doesn't mean risk doesn't exist because some company -- private equity, hedge funds -- will do the banks' job if the banks can't. The risks are still out there but are "morphing," El-Erian concluded.

-- Written by Bret Kenwell

Follow @BretKenwell

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