Small Banks Disappearing

[Revoltingest]

I ran across an interesting piece in the news...
Since 2000, There Are 29 Percent More Big Banks and 24 Percent Fewer Small Banks | National Review Online

The number of small banks has dropped dramatically over the years. This concentration isn’t a bad thing in and of itself — some of the drop in the number of small banks reflects market-driven consolidation. However, consolidation is bad when it’s driven by regulatory burdens that make it hard and expensive for small banks to survive. Repeated waves of bank regulation — most recently Dodd-Frank — can be particularly burdensome for small banks.

I prefer small banks for my borrowing needs, so it concerns me that they might become an
endangered species. Why? Large banks are less personal, more bureaucratic, less able to make
loans to unconventional borrowers, & in my experience more likely to be downright hateful.

Questions:

1) Is this phenomenon due to gov regulation?
I see a compelling case for #1 being true.

2) Is this consequence intended or unintended.
I don't see why the fed would intend consolidation of banks, but such an obvious consequence leaves me wondering. Are large banks easier to coax donations from?

 

[MysticSang'ha]

I ran across an interesting piece in the news...
Since 2000, There Are 29 Percent More Big Banks and 24 Percent Fewer Small Banks | National Review Online

I prefer small banks for my borrowing needs, so it concerns me that they might become an
endangered species. Why? Large banks are less personal, more bureaucratic, less able to make
loans to unconventional borrowers, & in my experience more likely to be downright hateful.

That has been my experience, too. For the last 20 years, I have only used a small bank for my personal accounts. They know me and my kids, I know them and their kids. They don't have all the bells and whistles as the larger banks have, but I have never needed them. I like the friendly atmosphere. One single small fee is charged per account for maintenance. That's it.

My business account was opened at a larger bank with many branches around the country. I don't mind the ability to make deposits at various locations when I travel, but dddddaaaaaannnnnngggggg.....the fees are outrageous. Plus, the people on the ground floor tend to be friendly and accommodating as much as they can, but there is a sharp divide between the higher-ups and the ground floor staff and management. They are continually subject to limitations here, there, and everywhere on finding solutions.

I'd love to transfer my funds to a small local bank where the business operates - but there aren't any.

Questions:

1) Is this phenomenon due to gov regulation?
I see a compelling case for #1 being true.

2) Is this consequence intended or unintended.
I don't see why the fed would intend consolidation of banks, but such an obvious consequence leaves me wondering. Are large banks easier to coax donations from?

I see government involvement as that love-triangle between corporate lobbyists, government officials, and international bankers that all collude toward regulating the availability of the nations funds so that they always flow upward toward them. Regulations - at first glance for me - are there and added to protect their vested interests. But I will admit that I haven't put as much time into studying the money flow as I'd like to.

 

[Sunstone]

There's no mystery about this, and it seems curious to try to make it more mysterious than it really is.

Historically, all industries tend towards consolidation into monopolies, or at least, semi-monopolies of a limited few players. Without government intervention to keep banks relatively small and decentralized, they are simply doing what players in every industry do: That is, banks are consolidating into fewer and larger players. Contrast the 1500 or so car manufacturing companies in the US during the late 1890s and early 1900s with the three car manufacturing companies today. Look at the rise to monopoly of Standard Oil, before the government broke it up. And even its break up didn't prevent near monopoly within the oil industry.

 

[Tarheeler]

In the early 90's I saw the the small local bank my dad had done business with for years (and where I had opened my first account), eaten up my a larger statewide bank, which was absorbed a few years later by a national one.

And it isn't restricted to banks; local everything has been disappearing for years. We had new Walmart Super Center open up several years ago, and lost two local grocery stores, a butcher, a small shoe shop, a florist, and a hardware store.

But, hey, it's all in the name of progress, right?



As for the cause, it's hard to pinpoint it. Sure, government policy is partly to blame, but industry is heavily involved in the political process through lobbyists and financing. And we have the always growing demand for cheaper goods and one-stop shopping for everything, from stocks and insurance to towels and potatoes chips. How can the small businesses, both bank and butcher, compete when the public demands more and the big guys can bring weight of the government to bear down on them?

 

[Dirty Penguin]

There's no mystery about this, and it seems curious to try to make it more mysterious than it really is.

Historically, all industries tend towards consolidation into monopolies, or at least, semi-monopolies of a limited few players. Without government intervention to keep banks relatively small and decentralized, they are simply doing what players in every industry do: That is, banks are consolidating into fewer and larger players. Contrast the 1500 or so car manufacturing companies in the US during the late 1890s and early 1900s with the three car manufacturing companies today.

This is correct.

Two pieces that puts the OP perspective in context for me is this here....

Supervision Spotlight on Small Business Lending Conditions - SRC Insights: First Quarter 2010 - Philadelphia Fed

And this...

U.S. GAO - Bank Regulation: Regulatory Impediments to Small Business Lending Should Be Removed

GAO provided information on small business bank credit and the impact that regulations have on its availability, focusing on whether regulations on small business lending can be safely reduced.




GAO found that: (1) bankers have become more conservative in small business lending because of economic considerations; (2) regulatory burdens related to real estate collateral and appraisal requirements have affected small business lending; (3) although recent interagency initiatives have attempted to increase small business lending by modifying supplementary collateral requirements for real estate appraisals, further clarification of appraisal evaluation guidelines is needed; (4) loan basketing has had a limited impact on small business lending; (5) the most effective way to reduce small business lending impediments is to place greater emphasis on internal controls evaluation and testing, since strengthened internal controls can help to reduce administrative burdens and financial risk and provide banks with incentives and flexibility to improve bank management; and (6) other factors that affect small business lending decisions include the regulations placed on banks, increased presence of nonbank lenders, and increased incidence of borrower bankruptcies and risks under environmental liability laws.

So some reasons why some banks are not lending like they use to is that the risk for them is greater in a volatile economy coming out of a recession. May be they can't rely on bailouts anymore so they're not willing to play around with investor's money like they did prior to the collapse. As the first link indicates, many small business owners aren't affected by regulations so much as they are business insurance and other factors. But this isn't to diminish Rev's concerns. I suspect that in his corner of the world he may well be facing various regulations pertinent to his business.

 

[Monk Of Reason]

I ran across an interesting piece in the news...
Since 2000, There Are 29 Percent More Big Banks and 24 Percent Fewer Small Banks | National Review Online

I prefer small banks for my borrowing needs, so it concerns me that they might become an
endangered species. Why? Large banks are less personal, more bureaucratic, less able to make
loans to unconventional borrowers, & in my experience more likely to be downright hateful.

Questions:

1) Is this phenomenon due to gov regulation?
I see a compelling case for #1 being true.

2) Is this consequence intended or unintended.
I don't see why the fed would intend consolidation of banks, but such an obvious consequence leaves me wondering. Are large banks easier to coax donations from?

I have not done research on the topic but I notice you seem to be missing a third option.

3) Is it the result of big bangs using their size to quash smaller bangs much like all major corporations seem to do to competing small businesses?

I'm not saying the gov isn't playing a role but I see no reason why large banks can't apply the same advantages that corporations pull over mom and pop shops.

 

[esmith]

An interesting article on this drop in the number of small banks can be found here.

Fed Shocks Small Banks With Basel Proposal, 2,000 Banks Could Disappear - Forbes

 

[Monk Of Reason]

So in the opinion of people in this thread, would the idea of a national bank be a good idea or a bad one? Why or why not?

 

[Avi1001]

Maybe we should switch over from banks to Bitcoins.

Utoh, $400 million of them were stolen :

Hackers allegedly stole $400 million in bitcoins. Here’s how to catch them.

 

[Revoltingest]

So in the opinion of people in this thread, would the idea of a national bank be a good idea or a bad one? Why or why not?

Are you thinking of a single bank to serve us all, or having many banks, but with one which operates across the nation?

 

[Revoltingest]

I have not done research on the topic but I notice you seem to be missing a third option.

3) Is it the result of big bangs using their size to quash smaller bangs much like all major corporations seem to do to competing small businesses?

I'm not saying the gov isn't playing a role but I see no reason why large banks can't apply the same advantages that corporations pull over mom and pop shops.

Actually, your option #3 is an answer to #1.
Yeah, I know that economy of scale would also lead to consolidation. The real question is whether regulation is also causing it, & leading to undesirable consequences. As Mystic & I find, smaller is better. I currently use both one national & one local bank. The national one (Chase) is better for electronic banking. The local one (United Bank & Trust) is far far better for borrowing, which is my most critical need.

 

[tytlyf]

An interesting article on this drop in the number of small banks can be found here.

Fed Shocks Small Banks With Basel Proposal, 2,000 Banks Could Disappear - Forbes

I agree with the Basel Proposal. I see no problem requiring banks (even small) being required to cushion their business. Are you in favor of it or do you feel that the government should bail out these businesses if something should happen again?

 

[Avi1001]

Are you thinking of a single bank to serve us all, or having many banks, but with one which operates across the nation?

I like the idea of one great-big central bank, and then just install ATM's all over the country. We'd never have to deal with a banker again .

 

[Revoltingest]

I like the idea of one great-big central bank, and then just install ATM's all over the country .

So....when things go wrong, they go wrong everywhere, eh.
I prefer decentralization.

 

[Avi1001]

So....when things go wrong, they go wrong everywhere, eh.
I prefer decentralization.

Or, what about this, we combine all the McDonalds with banks and we do our banking while eating a #1, Big Mac sandwich and fries !

 

[esmith]

I agree with the Basel Proposal. I see no problem requiring banks (even small) being required to cushion their business. Are you in favor of it or do you feel that the government should bail out these businesses if something should happen again?

What? I thought the discussion was why small banks are disappearing. So the only answer that is germane to your question is... Non sequitur

 

[Avi1001]

So....when things go wrong, they go wrong everywhere, eh.
I prefer decentralization.

Here's another idea. We eliminate all the banks completely and off-shore the phone and internet banking to India, and we switch to Bitcoin currency. This would reduce our costs while making our currency no value .

 

[tytlyf]

What? I thought the discussion was why small banks are disappearing. So the only answer that is germane to your question is... Non sequitur

Yes, but it doesn't mention the Basel Agreement as the reason. It's still big banks vs small banks. The small banks were just surprised that they were included in the $500 million cap. The larger banks expected this.

 

[Revoltingest]

Here's another idea. We eliminate all the banks completely and off-shore the phone and internet banking to India, and we switch to Bitcoin currency. This would reduce our costs while making our currency no value .

An astounding suggestion you have there!

 

[esmith]

I for one favor the idea of big banks and small banks. The reason for this, in simple terms, is as follows. Big banks have the resources to handle big projects whereas small banks are more in-tune with the requirement of the local community and understand the requirements and issues in the area they service.