#308. Bankers as Heroes!

Posted on | The Agurban

Bankers as Heroes!
What would you call a banker who handed out $4 million in small bills in a time of emergency to people who didn’t even have accounts at his bank?  Or one who lent 100% of the fix-up costs on houses in the slums of his town?  Or one whose very first loan as a bank was to a woman entrepreneur who had just lost her husband? 

Heroes!  I’d call all of them heroes! 

Each of these bankers knew that the growth and survival of their town was the most important thing they could do and the towns depended upon them stepping up to help fund new businesses.  And, each went about creating vibrant towns, often in unorthodox ways.

That first banker, who handed out $4 million, doubled the size of his bank within six months.  The second revitalized that slum into a haven for artists from all over the USA.  And, the woman entrepreneur went on to have tens of thousands of employees, helping to turn her hometown into the international center for live music.

These are just a handful of the incredible stories that I’ve found of the importance of hometown banks from all over the country. 

All bankers live by the ‘five C’s of banking’: Cash Flow, Capital, Collateral, Conditions and Character.  The first four are easy to quantify but the fifth one, Character, is impossible.  Local bankers often put as much importance upon character as the other four, because they’ve seen how someone solves their problems, works themselves out of tight situations, and understands the commitment they’ve made when they borrow money.  That judgment is the intuition of banking that can only be done locally, and why local bankers often lend money to start-ups when a mega-national bank won’t.   

The problem for local banks is that increased government rules, overzealous regulators and changing demographics have resulted in the number of banks in this country falling from over 14,000 twenty years ago to less than 7,800 today, and predications are that it will decline further to less than 6,000 in the next five years.  If we continue to lose community banks, it could be the death knell for many towns.

Yet, while the small banks have been dropping like flies, large banks have been growing into monsters.  Today both the Bank of America and JPMorgan Chase are each larger than ALL of the 7,170 community banks that are under $1 billion in size! 

Unfortunately, this trend is likely to continue.  The recent Dodd-Frank Bill, 2,300 pages in length, will add 240 new rulemaking initiatives and 70 studies by the 11 regulatory bodies that oversee banks.  Washington’s rule of thumb is that every page of a new bill results in 10 pages of new rules, which would mean about 23,000 pages of rules will have to be studied and complied with.  Laid end to end, 23,000 pages is over 4 miles long, a daunting task for anyone to read and understand, especially smaller bankers who often have to juggle several hats.

But, there is hope that I want to talk about.  I’m going to lay out the great stories above and many others in a new talk I’m developing on the importance of community banks to rural America.  I hope to roll out this new talk sometime in 2011.

Please thank your local banker.  I’d love to hear their own “hero” story of community banking!