In his December 20, 2011, American Banker editorial, “Community Banks Should Ask for a Divorce,” Robert H. Smith summarizes the growing frustrations of community bankers today in this way:
Unfortunately the community banks of this country are thrown under the bus by just being a bank. They have been unable to disassociate themselves from extra costs and lost credibility resulting from the scarred reputation of the bigger banks. Today the community banks are subject to the same increased regulatory burden, increasing capital and general public disdain as the larger bank. It’s time for community banks to disassociate themselves from the big banks in the eyes of the public, the legislatures and the regulatory community. They must seek regulation under a different set of expectations, consistent with their size, capabilities and ability to compete consistent with community opportunities.
Smith, a former Chairman and CEO of Security Pacific Corp., now founder and director of a community bank in Newport Beach, California, “gets it.” Having made a living in a “too big to fail” bank and now having to survive and compete with Security Pacific’s acquiring institution, Bank of America, Smith conveys the mounting uncertainty of the future of community banks in a post Dodd-Frank era.
What’s perplexing to me is the inability of so many of Smith’s community banker comrades to recognize the reality of the financial service marketplace today. For more than 100 years, community banks and big banks have coexisted serving different market segments with virtually the same product mix. Community banks relied on the larger banks for traditional correspondent relationships seeking help with loan participations and clearing needs. And while some of these relationships still exist today, most have gone by the wayside with the emergence of community “bankers banks” and other larger community bank correspondent relationships. Today, the systemically important to big to fail institutions have come to rely on community banks for one thing and one thing only…their credibility and grassroots relationships with lawmakers.
Make no mistake; the big banks are taking a ride on the community bank advocacy bus in Washington and throughout state legislatures all across the country. They hide like thieves in the night behind the goodwill and unified message of the community banks proclaiming “one industry voice” as the only means to a successful legislative and regulatory end. And look where that has gotten us…a “one size fits all,” over-regulated world and a growing public perception that a bank is a bank, all of us out for personal enrichment and public deception.
In his bestselling book, “Good to Great,” Jim Collins says this about the philosophy of great companies:
They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline—first the people, then the direction—no matter how dire the circumstances.
The same rings true for industry success. It is time community bankers to throw the “too big to fail” off our bus. Community bankers should finally unite as one and support only those organizations whose philosophies and advocacy match precisely their needs and is not conflicted by having to serve two masters. Or as Smith concludes:
The community banks should work to convey a message that they should and must stand alone if they are to remain. They must be divorced from the larger banks both in reputation and regulation if not name.
It only took Kim Kardashian 72 days to realize that her union with Kris Humphries was not a marriage made in heaven. As we begin this New Year, let’s resolve that we have tied the knot with the too big to fail for far too long and vow instead to pull our own wagon by bifurcating and advancing our own legislative and regulatory agenda and pursuing and preserving our own good name.
Tags: community banks, Independent Bankers Association of Texas
PS
By the way that 37 million asset bank is in excess of $600,000,000 today…Our name is TEXAS FIRST BANK and of the bankers in the 1991 USA Special Report, I am the only one still Chairman of the Board of my bank.
Happy New Year
Congrats to Robert H. Smith and Cam Fine! Your are correct about the growing frustrations amoung community bankers in America. We have seen these frustrations growing for more than 20 years….I refer you to a Special Report: BANKERS WITH INFLUENCE in USA TODAY dated Wednesday May 29, 1991
The article featured Citicorp NY John Reed, Wells Fargo Carl Richardt, Wachovia John Medlin Jr., Banc One Corp. John McCoy and one small banker Chuck Doyle…my bank had 37 million in assets at the time and the lead wa “KEEP US SEPARATE”
It has taken a National disaster on Wall Street to finally convience the world that “too big to fail” exists and that our country needs a “bifurcated banking system” with regulation for large and for small institutions that are custom made! “KEEP US SEPARATE!”
Yes Yes Yes!!! This must be the central focus. Draw the line clearly and then lobby to break up TBTF banks. This will end the uneeded regulatory BS on community banks and return Free Market Capitalism to clarity. We must not allow fear mongering to stop this initiative.
My personal views only, not an official view and may not represent my orgainzation as a whole with respect to a formal statement about the subject matter.