San Antonio Express News, January 9, 2016
Being a presidential election year, 2016 promises to bring much talk about many political hot topics, but not near enough talk about one of the greatest threats to our economy — the endangerment of community banks.
Since the financial crisis in 2008, a bright line of distinction has been created between community banks and too-big-to-fail banks. Community banks — local banks that invest in local communities — are saddled with many new regulations resulting from the misdeeds of the too-big-to-fail banks. While lawmakers have proposed many regulatory relief initiatives in the 114th Congress, only a handful of minor measures have been enacted. The need for community bank regulatory relief has garnered bipartisan support, but as often is the case in Washington, behind-the-scenes politics have stymied constituent and industry efforts.
It’s ironic that the continuous wave of onerous new banking regulations to address Wall Street’s misdeeds — better known as the Dodd-Frank Wall Street Reform Act — is actually helping megabanks gain market share at the expense of the nation’s nearly 6,000 community banks. Research by the Institute for Local Self-Reliance found that one in four community banks has disappeared since 2008. The report noted that in 1995, megabanks with assets of $100 billion or more controlled 17 percent of all banking assets. By 2005, their market share reached 41 percent and today, it is an astonishing 59 percent.
Despite this onslaught, community banks continue to provide critical local lending support that accounts for more than 60 percent of all small business loans under $1 million and more than 75 percent of all agricultural loans. Community banks strive to serve customers and do so responsibly. Take mortgage loans. Between 2009 and 2012, the default rate on home loans across all banks was 16 times higher than for residential mortgages held by community banks. Why? Because community banks know their customers. They specialize in “relationship banking” as opposed to “transactional banking,” which the large banks have mastered through economies of scale. Relationship banking allows bankers to make decisions based on customer needs.
Let’s hope our federal lawmakers can remove the regulatory shackles from community banks to help local folks and small businesses thrive and prosper anew — before it is too late to save one of this country’s most important institutions.
Chris Williston is president and chief executive officer of the Independent Bankers Association of Texas, the largest state community banking association in the nation.