#334. Community Banks: What I’d Do

Posted on | The Agurban
Community Banks:  What I’d Do
Today I’m doing my first talk on The Importance of Community Banks.  In it, I’m laying out examples of what community banks mean to a community and why it is critically important to the lifeblood of towns for us to continue to support and grow these assets locally.
I’ve worked overseas (Brazil) where only a handful of banks dominated as compared to the USA where we have a more wide open banking environment.  The difference, from a small borrower’s standpoint, is huge.  With only large banks, the local branch manager generally makes small loans “by the book”.  Deviating from that book from headquarters, backing new entrepreneurs as an example, is generally a career ending move.  Not so with local, community banks that depend upon those entrepreneurs for their growth.
We’ve lost almost ½ of the 14,000 banks we had in this county twenty years ago, going from 14,000 down to 7,800 today. Predications are that this number will fall to less than 5, 000 or 6, 000 within five years and continue to fall.
This decrease isn’t due to competition.  Bankers have been competing against each other for centuries.  Rather, it is the increased amount of regulations coming down from DC.  The Dodd-Frank Bill, passed last year, is 2,310 pages in length compared to the equally famous and transformational Glass-Stegall Bill (1933) which was all of 37.  In today’s Washington, DC, the common rule is that every new page of a law will result in 10 new pages of rules and regulations, meaning that Dodd-Frank will result in over 23,000 pages of new regs.  It is estimated that every bank in the country will have to hire two or more new employees, just to oversee these new regs. These new employees won’t make the bank another dime in earnings, but rather will cost it, draining resources that could go into lending and growing the bank.
My proposal is that Washington cut back on these overly onerous regulations for community banks, allowing them to continue to lend in their towns.  These banks weren’t the cause of the financial meltdown.  It was Wall Street (Too Big to Fail), not Main Street (Too Small to Save) that caused the collapse.  It is time to let Main Street function and do so in a rational manner.

We don’t need fewer banks in this country, we need more!