Entry
With all the talk about "too big to fail" and Wall Street bonuses, it would appear that the big banks are in trouble. However, when you look at who will most likely benefit the most from the upcoming stimulus packages, expecially the SBA money, it will in fact be the big banks. Why? Because they have the most money to use (remember the government gave them a whole bunch of capital last year, not the smaller banks), the most comprehensive structured SBA groups, and the easiest access to credit.
Meanwhile, it appeared that the community banks, while they have had a nice run of it recently, would soon be in the back seat again due to lack of access to credit and limitations on their production. Basically, they can't create large divisions to put together packages like SBA as cost effectively as the larger banks. In fact, in many recent conversations with community bankers, they have indicated that the SBA process is too much work to do unless they create a large staff increase. But community banks are run differently than that and they don't typically staff up without business to support it (pretty good concept).
However, this week Chris Dodd proposed a bill that would try to even the playing field not by giving community bankers more but rather by restricting the larger institutions. So there are competing forces on both sides and time will tell who will come out on top. Stay tuned as I am sure there will much discussion about both of these issues.
Comment
Excellent article in Wednesday's WSJ "Cities, States Tell Big Banks They'll Go Elsewhere."
It's very much a tea-party movement from the cities and states against the big banks as they are fed up with the tight supply of credit. State legislatures in MA, MD, MN and NM have introduced legislation to funnel more money into small financial institutions - and to give them advantageous 'looks' at winning state bids for banking services (i.e. payroll or bank accounts for holding taxes).
Mayor Bloomberg (one of the richest men in America) wants to put $25 million of NYC's money in city tax proceeds into credit unions. "Community banks are more likely to make loans to small businesses."
The 5 biggest banks led by Bank of America, Wells Fargo, and JP Morgan currently hold nearly 40% of all US deposits up from 24% six years ago.
I think David has a fighting chance - and rightfully so. A lot of smaller banks did not take TARP money and made significant profits in 2008 and 09 and are positioned to lend today.
In sum, cities and states are making legislative moves to make it easier for small banks to compete because they are tired of the big bank mentality.
In a related article in the Wed. WSJ - here are the payouts in 2009 for top bank CEOs: JP Morgan $17 million, Deutsche Bank $13 million, Goldman Sachs $9.6 million. Some community banks only have $200 million (some even less) in assets. So these huge bailout banks (Goldman and JP Morgan) are paying their CEOs 20% of the total assets of some of these community banks - for some perspective.
Be the first to rate this
|
Sign in to rate this
This all works until the big banks get their feet under them again and are able to provide more competitive rates and terms again, which isn't that far away in my opinion. History does have a very interesting way of repeating itself. However, FDIC is supporting the community banks wholeheartedly so we shall see.
Be the first to rate this
|
Sign in to rate this