The federal government’s response to the ongoing banking crisis could have a major impact on the nation’s smallest banks, which do not take responsibility for the disruption. Community banks have a huge impact on local economies across the country, and sabotaging them with new costs has far-reaching consequences.
Fiscally well-positioned, community banks are more likely to provide short-term local loans than the big banks, which are often piling up on Treasuries and mortgage-backed securities that have been devalued by the Federal Reserve’s aggressive interest rate hikes. I have many.
But the lending capacity of community banks is threatened as bank depositors are seen moving tens of billions of dollars from smaller institutions to larger ones, seeking to escape safety. . Bank of America alone received $15 billion in new deposits in the days following the failures of Silicon Valley and Signature banks.
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Community banks must pay the Federal Deposit Insurance Corporation “special assessment” imposed on all banks to fund the rescue of the SVB and signatory banks, even if they played no part in the failure. it won’t work. New regulations and fees resulting from this crisis will hit smaller banks disproportionately compared to larger competitors who can afford to treat them as line item costs. Smaller banks are planning to cut lending by 15% to 40% in the wake of the crisis, according to Goldman Sachs.
Some commentators and policymakers have responded to these hurdles facing community banks. “The truth is, we don’t need local banks,” Kevin O’Leary, an entrepreneur and “Shark Tank” investor, recently said. Investor Bob Dole echoed this sentiment on Fox News, pointing out that the United States has far more banks than Japan or Canada, and that banks are nothing more than public utilities regulated by the government.
Treasury Secretary Janet Yellen also seems unconcerned. During testimony before the U.S. Senate last week, Senator James Lankford (R-Ok) asked Yellen: Yellen had no answer.
Senator Langford also asked Yellen if community banks would be bailed out if they ran into similar problems with SVB and signatures. Yellen replied that she would not. Only banks that pose a “systemic risk” will receive this treatment. In other words, large financial institutions with elite ties in Washington benefit from this backstop at the expense of community banks.
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This shortsighted view ignores the large role of small banks in the US economy. Create local his loans based on relationships, not algorithms. We offer personal service, not 1-800 numbers. They keep their money within the community, and instead of sending deposits to New York or New York, they buy local bonds and fund local projects. San Francisco.
For example, AMG National Trust Bank provides 90% of the loans to Front Range in Colorado. Community banks build symbiotic relationships with borrowers and communities, ensuring that all parties benefit and see each other’s success. These institutions are the lifeblood of free market capitalism and economic growth.
Community banks provide approximately 60% of all small business loans and more than 80% of agricultural loans. While many large banks have held back, smaller banks have also stepped up to offer Pandemic-era Paycheck Protection Program loans. About half of the community banks are in counties with populations less than 50,000 in her.
Community banks face challenges in the regulatory environment, including current expected credit loss (CECL) requirements, additional reporting on capital adequacy, and intense oversight of generally accepted banking practices that have disproportionately impacted smaller banks. already suffers from the strengthening of Between 2000 and 2021, the number of banks nationwide fell from 8,315 to 4,236. Between 1985 and 2011, an average of 183 new banks were established each year, but due to industry consolidation, only 4 banks were established each year between 2012 and 2019.
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Some bankers simply closed their stores, deciding that continuing to serve their communities wasn’t worth the regulatory burden that had little or nothing to do with the safety of local banks. More regulation and fees could be the final straw for many community banks.
To ensure that community banks can continue to provide lending services to their communities, policymakers should exempt them from new fees and regulations resulting from this crisis. A study by the Minneapolis Federal Reserve found that the cost of adding just two compliance officers to the bank’s payroll would make the community one-third of his bank unprofitable. .
Recognizing the critical role of small and medium-sized banks in the U.S. economy and their lack of responsibility in this crisis, protect small banks from new costs so that they can continue to provide the loans that small businesses and communities depend on. I can.
Earl Wright is CEO and Chairman of the Board of AMG National Trust Bank. Alfredo Ortiz is President and CEO of Job Creators Network.