Dick Morris: New Banking Bill Will Halt Slaughter of Community Banks
Ever since the 1980s, there has been a genocide going on aimed at smaller community banks. In 1984, there were 17,401 such banks, but by 2013, that number had shrunk to 5,146.
This matters because community banks are locally owned and operated and are much more likely to lend for local mortgages or for job-creating businesses in your community. The entire concept of banking is that it aggregates small individual deposits and plows them back into the community in the form of job-creating loans.
But the nation’s top fifteen banks — which together control $13 trillion of the $17 trillion in bank assets in the U.S. — are eager to supplant local banks. Their goal is to absorb as many as possible to tap into their local deposit base.
The Dodd-Frank bill, passed in 2010, was nominally designed to increase bank regulation in the hopes of avoiding another meltdown the likes of which we saw during the 2007-08 financial crisis.
But the big banks, who were responsible for the crash, easily met the new regulations and had no difficulty with the extra measures it required.
Small community banks found the regulations far more difficult to comply with. Even though these banks played no role in the 2007-08 crash, Dodd-Frank’s regulations came down on them like a ton of bricks.
Federal Reserve and FDIC enforcement officials aided the big banks by playing hardball against their smaller competitors. When a community bank made a number of bad loans — inevitable during the Great Recession — the feds were on their case, closing them down and forcing them to merge into one of the big banks.
And when these banks were closed by the feds, it truly meant disaster. Bank officers were fired, their pensions often liquidated, and the bank’s operations folded into large behemoths unconcerned with any local community.
It was a form of banking genocide.
Now, President Donald Trump and the Republicans have come to the rescue of the community banks, raising the asset levels at which tough regulations kick in from $50 billion to $250 billion.
This measure, by itself, should end the slaughter and frustrate the efforts of big banks to get bigger at the expense of our local community institutions.
The irony of former President Barack Obama’s efforts at fiscal stimulus is that he let his regulations and their enforcement strangle local banks even as he encouraged them to lend. He hit the gas and the brakes at the same time. (Obama was no socialist. He was a state capitalist. He wanted big banks he could negotiate with, not a hodgepodge of local banks each following its own policy).
More needs to be done. We not only need to protect smaller banks, but we need to rein in the larger ones. The asset accumulation and financial monopolies that led to the 2007-08 market crash have not abated. The concentration has simply gotten worse.
Now we must proceed to break up the big banks. The essence of anti-trust is not to permit anyone to get too big, yet in the banking sector, we have a virtually unlimited growth of big banks — banks that harness local cash and invest it in the global economy, not in our communities.
Good for Trump for leading the charge to protect community banks. Now, finish the job.
Dick Morris is a former adviser to President Bill Clinton as well as a political author, pollster and consultant. His most recent book, “Rogue Spooks,” was written with his wife, Eileen McGann.
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