America’s small bankers could be headed for the endangered species list, thanks in large part to “reforms” designed to fix problems small banks didn’t create.
The 2008 financial crisis took down hundreds of banks, large and small, including Washington Mutual, the largest bank failure in U.S. history.
Financial reforms put in place in the wake of the worst recession since the 1930s are still being implemented and are raising concerns with community bankers, particularly about the costs of complying with a plethora of new regulations.
The banks on the endangered list aren’t the ones that caused the problem. New regulations largely came about because of bad practices by large banks. But institutions large and small still have to comply, and that is costly – prohibitively so for smaller ones.
More time spent dealing with more aggressive regulators and competition with well-capitalized big banks could very well mean a small town bank won’t be able to make loans. Won’t survive. And won’t be able to help the town’s burger joints and feed stores survive.
FDIC Vice Chairman Thomas M. Hoenig has speculated that those factors in part could take down as many as half of the nation’s small banks.
It’s partly a matter of scale. The perception in some financial quarters is that big banks are protected in the sense that it’s assumed if they get in trouble the government will bail them out – again. So they have access to less expensive capital and can offer their customers lending rates that small banks can’t compete with.
Republican U.S. Rep. Steve Pearce recently put it this way to the Journal: It comes down to big versus small, and big gets the breaks no matter the administration or situation. He said if small businesses are gone, New Mexico is going to be in very tough shape. Big businesses don’t really want to come here because we’re not a great return on investment with too distributed a population, he added, and said many small businesses in his district are hanging by a thread.
Going forward, it’s going to be tough sledding for smaller financial institutions. But many are gearing up for the challenges and are adopting new strategies to survive, such as investing in updated technology to serve their customers and handle paperwork.
If New Mexico wants a statewide economic recovery, it needs small banks loaning money and servicing their business friends and neighbors, whether it’s in Eunice, Wagon Mound or Socorro.
America needs its small bankers. Lawmakers should ensure that banking reforms don’t send them the way of small town five-and-dimes.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.