Inside Financial Services

Cam Fine Is Still Wrong About The Big Banks

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The ICBA’s Cam Fine is at it again. Here he is in Friday’s American Banker:

While representatives of the largest financial institutions portray their firms as indispensable to the nation’s banking system, many community banks view the proliferation of these massive firms as a distortion of our market-based economy. The consequences of the 2008 bailout persist years later. Allowing the megabanks to keep their profits during the good times while enjoying a federal backstop in times of trouble — a system of privatized gains and socialized losses—incentivizes risky behavior and provides outsized competitive advantages to these institutions.

The result of this moral hazard is a cycle of high-risk behavior followed by taxpayer-funded government intervention. That in turn contributes to reckless and anticompetitive behavior that has led to international interest rate rigging, mortgage securities fraud, electricity market manipulation and municipal bond trading fraud—as well as a wide-scale increase in regulation for banks of all sizes. [Emph. added.]

Let’s just say the guy really doesn’t like mega-banks. I’m at a loss to see why Fine restricts his complaints about “privatized gains and socialized losses” to just the big banks, though. During the runup to the housing bubble in the early 2000s, community bankers paid themselves handsomely for writing loans to real estate developers to build projects that turned out to be doomed a few years later. In the end, the bankers kept their paychecks, while the FDIC had to bail out depositors after the lenders failed. If that’s not privatized-gains-and-socialized-losses, I can’t imagine what is. And, for the record, the FDIC had to bail out so many depositors at small banks after the bubble burst that its reserve fund nearly ran out of money.

Cam Fine’s objections to the big banks are entirely misguided. First, if being a large, systemically important institution provides such a large competitive advantage Fine insists it is, why do institutions go to such lengths to avoid the designation? Fine’s ranting notwithstanding, any funding advantage big banks might have is swamped by the added capital, liquidity and regulatory costs a SIFI designation entails. He must understand that, right?

Nor, for that matter, are small banks and large banks the natural enemies that Fine imagines. Large banks provide community banks with all sorts of services, from forex services to payment processing, that help make community banks stronger competitors. Just to be clear to Cam, that’s a good thing not a bad thing.

Cam Fine’s dislike of the big banks—how many times has he unloaded on them so far?—has me wondering whether he’s gone from being merely misguided to semi-delusional. As it is, he sure isn’t doing his members many favors. Had Fine and the ICBA made common cause with the big banks in lobbying against Dodd-Frank, for instance, perhaps the final version wouldn’t have wrapped the small banks in so much regulatory red tape—and so many of Fine’s members wouldn’t be so worried about their solvency right now.  But he didn’t do that, and his members are worse off for it. Maybe Jamie Dimon has a point.

What do you think? Let me know!


5 Responses to “Cam Fine Is Still Wrong About The Big Banks”

  1. Friend of all banks

    Fine is responsible for the Dodd frank act. He got in bed with Elizabeth Warren, for reasons still unknown, but possibly his own ego.

  2. Lenny the Lumberjack

    Sounds like Cam is suffering from a permanent case of “balance sheet envy”, where size does matter. If he’s really that clueless about how important the mega-banks are to the global banking and financial system, he’s probably one of the more pubic examples of the ongoing survival of the “Peter Principle”. ‘Nuff said.

  3. Pat O'Brien

    In the good old days of no government backstops and much smaller banks, we still had bank crises. 1929? 1907? Even when banks used the bankers’ own personal capital there were banking disasters. It is odd that so many harebrained schemes and fallacious arguments are posited so long after reason should have prevailed.

  4. JRG

    Look at the data. Regulations put in place after the depression eliminated bank crises until the late 70s. The number of bank failures was minimal. The crises started after deregulation and the expansion of banking into high risk lending and other non traditional activities . LDC lending, Oil and Gas real estate in Texas. the LBO boom in the 80s ,the S&L crisis, the technology bust and of course the great recession all occurred in the last forty years. Bank failures ballooned from the 80’s on and that’s not counting the forced mergers of one time great names like Continental, Texas Commerce, Wachovia and too many others to mention

    • Pat O'Brien

      LDC lending occurred before deregulation, the price of oil had nothing to do with regulation and banks were never prevented from making loans outside of their territory, LBOs in the 80s were a problem not a disaster, the S&L crisis (which one?) was due to borrowing short to lend long when short rates went through the roof (the other one was due to allowing developers to lend money to themselves so that was deregulation), the tech bust was not a banking crisis. Deposit guarantees were the smartest thing to come out of the depression. My point is that bankers do dumb things whether they are doing it with their money or someone else’s.

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