Covering banking sometimes feels like covering the shootout at the O.K. Corral, given the way industry factions are forever taking potshots at one another. People at big banks scorn the community bankers as yahoos. Community bankers blame the money center folks for setting off the financial crisis, the regulatory backlash and the reputational nightmare that’s left banks more unpopular than even airlines and phone companies.
One thing bankers of all stripes agree on is that credit unions compete unfairly by not paying taxes. Credit unionists, in turn, portray bankers as greedy con artists more devoted to serving shareholders than customers. They all detest the regulators and politicians, until they need a favor.
Lately, the big-versus-small bank debate has flared up on the pages of American Banker. The spark came from Slate where blogger Matthew Yglesias published an item arguing that the nation’s 6,900 community banks should be euthanized. The gist of his argument is that the little guys are poorly managed, impossible to regulate and unable to compete. His solution is for the big regionals, like U.S. Bank and PNC, to gobble them up, leaving America with the same sort of financial oligopoly found in most other countries.
Rob Blackwell, my colleague and American Banker’s Washington bureau chief, countered with a piece in which he argued that Yglesias was “dead wrong” and doesn’t really get what small banks do (provide an outsized amount of credit to small businesses) or how they make money.
American Banker’s community banking editor, Paul Davis—who clearly has a horse in this race—joined in by arguing that if 99% of banks went away (leaving us with around 68 nationally) it would reduce the supply of credit, innovation and crisis leadership.
Cogent as the arguments are in favor of a large and diverse banking system, the trend has been unmistakably in Yglesias’ direction for three decades. Since the number of banks in the U.S. peaked in 1984 at 17,900, more than 60% have disappeared, leaving 6,891 in existence at the end of the third quarter—the lowest figure since the feds began keeping track in 1934.
The number of small banks will continue to decline, by all accounts, as economic and regulatory pressures force them to merge or shut down. The outlook for new-bank formation—once an engine of industry growth—is grim. Amish backers managed to gain approval this month to establish Bank of Bird-in-Hand, the first “de novo” institution created in three years. To satisfy skittish regulators, they had to file 18 inches of paperwork (up nine-fold in two decades). How many entrepreneurs have lined up to do the same? One–and it’s in American Samoa, the Wall Street Journal reports.
- What Matthew Yglesias Should Have Said About Small Banks (americanbanker.com)
- The Real Reason Why There Are Too Many Banks (snarketing2dot0.com)
- Slate Writer Is Dead Wrong to Root Against Community Banks (americanbanker.com)
- Whither Community Banks? Part II; Regulatory Rows; Small-Dollar Credit (americanbanker.com)
- Three cheers for small banks (blogs.reuters.com)
- Community banks ‘too small to survive’? Bankers weigh in (bizjournals.com)
- Matt Yglesias e… (lovelyliberals.wordpress.com)
- Big Banks Bad, Small Banks Worse (wallstreetpit.com)
- Debit Card Interchange Fees: Friend or Foe? (mint.com)
- Matthew Yglesias: Alan Greenspan bank capital: A fraud: Noted (delong.typepad.com)