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Community banks have a proportionate disadvantage to taxpayer-subsidized megabanks as the crushing burden of regulation meant to stop the abuses of Wall Street rain down excessively on Main Street.
October 30
Sometimes it feels like I've seen it all. After 10 years of representing community banks in the nation's capital, it takes a lot to surprise me.
But I must admit I was pleasantly stunned when Wall Street's financial regulator recently released reports concluding the largest banks enjoy a cost advantage consistent with the idea that they are "too big to fail." Why the shock? Because the series of reports came from economists at the Federal Reserve Bank of New York, often seen as the regulator coziest with the Wall Street megabanks it regulates.
The studies look wide and deep into the taxpayer-based subsidy that we at the Independent Community Bankers of America have long maintained "too big to fail" banks enjoy. The results aren't pretty for anyone interested in open markets and financial security, but they offer an important look at this persistent and burgeoning problem.
For one, the studies offer further evidence of the megabank cost advantage that many researchers have already identified. According to economist
In a
The reports conclude with some thoughtful recommendations on what we can do to try to stop this cycle of doom. The
Following the release of the New York Fed reports, the International Monetary Fund released a
In short, "too big to fail" is real, tangibly benefits the biggest banks, distorts free markets, incentivizes risky behavior, puts our financial system in jeopardy, has strengthened following recent government bailouts and requires additional megabank capital as an offset. Gee, where have I heard that line before? Oh yeah, ICBA and community bankers have been saying that for years.
Community bankers know full well they face a government-sourced competitive disadvantage because they have to operate their businesses under these conditions every day. We watched firsthand as mammoth financial firms received hundreds of billions of dollars in direct taxpayer funding and government loans following a financial crisis that they themselves caused. We've fought hard to stay afloat and to continue serving our communities, all the while paddling upstream against this subsidy.
Let me be clear, I'm not shocked by these results. But I am surprised that the truth was set free in an encyclopedic volume of 11 reports from the New York Fed and a follow-up report from the IMF confirming prior research on the subject. I applaud these institutions' fortitude in the face of what must have been significant headwinds.
ICBA and community bankers have known the truth of "too big to fail" all too well for way too long. We have suffered the consequences through massive consolidation and concentration in our financial system. The largest and most powerful arm of the central bank of the U.S. has finally admitted the megabank emperors have no clothes. It is past time that we as a nation get to the bottom of this dangerous threat and fix it before it takes our economy down again. I sincerely hope that our policymakers are ready, because time is running out.
Camden R. Fine is president and CEO of the Independent Community Bankers of America.