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COMMUNITY BANKS!!!! A short thread.
"A community bank is a depository institution that is typically locally owned and operated"
https://en.wikipedia.org/wiki/Community_bank
1/14
"A community bank is a depository institution that is typically locally owned and operated"
https://en.wikipedia.org/wiki/Community_bank
1/14
I am paraphrasing the great @ProfessorWerner here, but the best kinds of banks are local, not-for-profit, don't pay bankers’ bonuses, which serve ordinary people and small firms, don't merge with national/international banks.
https://professorwerner.org/blog/
2/14
https://professorwerner.org/blog/
2/14
I can't remember where exactly, but in @matthewstoller 's book Goliath he also mentions how big banking creates financial tools that crowd out small and midsize firms and almost always creates monopolies across all industries. (correct me if I am wrong there Matt)
3/14
3/14
So call me shocked when I find a Jay Powell talk regarding community banking in 2013 at the St. Louis Fed!!
4/14
4/14
He starts off by stating that he is a satisfied customer of a community bank and that, "Community banks are a crucial part of our financial system, our economy, and more more than that they are part of the fabric of our society."
Great start!
5/14
Great start!
5/14
He further states that Community Banks in the US are the primary source of credit for small and mid-level sized businesses.
He recognizes that they are in no way responsible for the Great Financial Recession, but that they paid the price along with everyone else.
6/14
He recognizes that they are in no way responsible for the Great Financial Recession, but that they paid the price along with everyone else.
6/14
He also acknowledges that there is "soft information" that community banks have about its customers that leads to low default rates on their loans than the national firms.
7/14
7/14
Loans made outside of the local area default at much higher rates. Local banking relationships have soft information that yields better results. (Non-performing credit is the cancer of the economy so this matter SO MUCH).
8/14
8/14
Then he goes on to say that Community Banks should get into derivatives to increase profits......
Then says the Volker Rule may be bad for Community Banks......
https://www.federalreserve.gov/supervisionreg/volcker-rule.htm
9/14
Then says the Volker Rule may be bad for Community Banks......
https://www.federalreserve.gov/supervisionreg/volcker-rule.htm
9/14
Looks like the Fed hopes that Community Banks get into Hedge Fund and Private Equity Funds? Are they nuts? Remember back to Professor Werner and Matt Stoller, banks are best when they are local, not for profit, and only make money from DOING BANK STUFF.
10/14
10/14
Namely, working with local people to get them credit. Bankers can make some money off those services, of course, but why get into the Hedge Fund and Private Equity racket? Oh yeah, since then if they do that they become more reliant on.....drum roll.....THE FED!!!
11/14
11/14
I digress, back to Powell.
Simple capital rules for smaller banks is critical. Risk based capital rules were loosened some due to feedback during Dodd/Frank rule making period.
12/14
Simple capital rules for smaller banks is critical. Risk based capital rules were loosened some due to feedback during Dodd/Frank rule making period.
12/14
Community banks have been crowded out by national companies out of traditional asset classes. Namely, Real Estate, credit cards, car loans. As consolidated national firms monopolized those, the number of asset classes community banks can effectively service has diminished.
13/14
13/14
TAKEAWAYS
1) The distance between the lender and the debtor matters
2) Consolidation in the banking industry isn't great
3) The Volcker rule matters
4) The Fed has an interest in regulating community banks, not necessarily in strengthening the Community Banks
Fin/
14/14
1) The distance between the lender and the debtor matters
2) Consolidation in the banking industry isn't great
3) The Volcker rule matters
4) The Fed has an interest in regulating community banks, not necessarily in strengthening the Community Banks
Fin/
14/14
