Monday, August 27, 2012

Big banks, community banks

There is so much talk today about the "too big to fail" banks.  That problem has certainly not gone away but much has been underway to plan for a disassembling of a large bank into small smaller viable units if it implodes. 

The Dodd/Frank bill has placed an amazing number of requirements on all banks, 2100 plus pages of such requirements, that only the larger banks can truly administer.  I have been told that one large bank has 200 attorneys dedicated solely with the task of understanding and  complying with Dodd/Frank. 

Recently I met with a senior exec of the American Bankers Association and asked how small banks, especially so-called community banks, are coping with the costs of this.  Her response was simply that they were looking to sell, merge, or liquidiate into positive or modestly negative disolutions.  The leaders are all wealthly as measured in their communities so why not just back out now. Their only real other option to cope with the complexity of so many rules, starting with Sarbanes/Oxley and now massively made more complex by Dodd/Frank, is to hire consultants, lawyers, accountants, and public relations types who have gained fluency in all of these requirements.  They also add staff, but then they need the consultants with specialized knowledge.  That is costly, costly I say again.

So while so many politicians and individuals, not only those one dimensional tea party types in the House but also regular community based people who like to know their bankers personally, praise community banks, Dodd/Frank is inadvertantly conspiring to drive many community banks out of business.  They have no idea, and smart community bankers will not alert them to their desire to sell or diassemble their businesses in advance because everyone knows that playing cards close to the vest is the best policy, especially local business folks.  They are smart, they are loyal, but they will not play a losing hand.   


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