I’m outraged at the series of sanctimonious statements lately coming from the Independent Community Bankers of America over the supposed threat to the financial system posed by “too-big-to-fail” banks, and the unfair government subsidy they purportedly receive. The latest version of ICBA griping came in the form of an op-ed last week in American Banker by chairman-elect John Buhrmaster. As you can imagine, Buhrmaster just loves the Brown-Vitter bill, which would slap unreasonably high capital requirements on big banks and ease the regulatory burden on smaller ones. “Employing stricter capital guidelines on the largest and riskiest financial firms while easing the regulatory burdens they have caused for the rest of us would . . . remove excessive government distortions in our nation’s financial sector,” he thunders, barely stopping to take a breath. “Despite the inevitable kicking and screaming from Wall Street, these reforms are essential to freeing up our markets and putting the ‘capital’ back in capitalism.”
Oh, please. Buhrmaster has no interest in putting the capital back in capitalism; he’s merely engaging in special pleading. To begin with, if he really thinks big banks are inherently dangerous and much riskier than community banks are, he’s kidding himself. Say what you want about the boundlessness of Wall Street greed, large banks are more broadly diversified, both by loan and product type, than small banks are. Too many small banks are simply money spigots for local developers. That’s why the vast majority of bank failures (and FDIC losses) this past cycle were related to smaller banks. If big banks showed the same sort of loan concentrations of many community banks, regulators would force out their managements.
What’s more, notwithstanding the Simon Johnsons of the world, TBTF banks don’t enjoy any competitive advantage via a supposed special government subsidy by virtue of their size. If anything, the all-in cost of funding of big banks is slightly higher than it is for smaller banks. Nor do big banks earn higher returns. This notion that being TBTF is some sort of special advantage is a myth. If it were not, you’d see big banks and other large financial services firms clamoring to be designated as SIFIs. They are not. In the meantime, since the recession ended it’s been the big banks that have taken the lead in lending to what are supposed to be community banks’ bread-and-butter customers: small business.
Buhrmaster is simply looking for some help from the federal government, in the form of Brown-Vitter’s onerously high capital requirements, in his competition with the megabanks. I love community banks because I love free-market competition. In market after market, community banks go toe-to-toe with the big banks and win. But the ICBA, under Buhrmaster and its CEO, Cam Fine, have chosen not to champion community banks for their ability compete. Instead, they’ve resorted to whining and misleading in a shameful, unpatriotic effort to put one group of banks at a disadvantage while engaging in an unseemly attempt to secure a handout for the banks in their organization. It’s a disgrace.
What do you think? Let me know!