The War On Small Banks

Camden Fine, writing in the Washington Post, makes the argument in favor of small banks:

Unlike Wall Street banks, which make their money based on volume and transaction fees, community banks make their money the old-fashioned way. They pay their customers interest on their hard-earned savings, they lend those deposits back into their communities to small businesses that create jobs, and they price those deposits and loans to make enough on the difference to pay their employees and utility bills, and maybe even to purchase a scoreboard for their local high school football team.

and explains the harm that present Fed policy is doing to small banks:

Now the Fed is pricing their deposits. Now the Fed is setting the spread. With nearly zero percent rates and slack credit demand, how are community banks supposed to make a viable margin on their funds? Community banks are swimming in liquidity as depositors pour their savings into their local banks in search of safety and security. Most community banks are holding short-term investments because they figured that rates would begin to rise in the next 12 months or so. After all, rates have been near zero for almost three years.

This policy functions in a pincers movement with the policy of providing trillions in loans to troubled big banks while closing troubled small ones. It leads inexorably to ever larger, ever more systemically risky banks, able to make claims on the public purse.

0 comments… add one

Leave a Comment