{"id":1318407,"date":"2020-02-24T20:20:00","date_gmt":"2020-02-25T03:20:00","guid":{"rendered":"https:\/\/www.postindependent.com\/bankers-hours-column-david-vs-goliath-in-the-banking-world\/"},"modified":"2020-02-24T20:20:00","modified_gmt":"2020-02-25T03:20:00","slug":"bankers-hours-column-david-vs-goliath-in-the-banking-world","status":"publish","type":"post","link":"https:\/\/alwaysmountaintime.com\/kske\/local-news\/bankers-hours-column-david-vs-goliath-in-the-banking-world\/","title":{"rendered":"Bankers\u2019 Hours column: David vs. Goliath in the banking world"},"content":{"rendered":"
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Sen. Elizabeth Warren would like to see more small town banking institutions, so-called community banks. She believes that little banks in little towns are closer to their customers and can serve them better than the TBTF\u2019s (Too Big to Fail), and she\u2019s probably mostly right. She also believes that big banks merging with little banks creates too many mega institutions that would be, yes, Too Big to Fail, so she\u2019s the co-sponsor of a bill that would make mergers and acquisitions of little guys by big guys more difficult.<\/p>\n

She\u2019s almost certainly wrong on that score.<\/p>\n

In respect to the first issue: Having a local bank owned by mostly local shareholders serving the community seems to be a really good idea for everybody. Hey, who hasn\u2019t seen \u201cIt\u2019s a Wonderful Life\u201d at Christmas time? Problem is that it\u2019s hard to put into practice in the 21st century U.S. banking environment.<\/p>\n

Things have changed since Jimmy Stewart\u2019s time. Heck, they\u2019ve changed since my time, when often a bank president could approve a good loan with a nod because he knew the borrower and the collateral, and probably was intimately familiar with the customer\u2019s business. Now, the 2nd National Bank of Downriver, Montana, has to conform to the same set of regs as Bank of America. Today the community bank exec may know the middle names of the borrower\u2019s kids; the examiners don\u2019t.<\/p>\n

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Having a local bank owned by mostly local shareholders serving the community seems to be a really good idea for everybody. Hey, who hasn\u2019t seen \u201cIt\u2019s a Wonderful Life\u201d at Christmas time? Problem is that it\u2019s hard to put into practice in the 21st century U.S. banking environment.<\/p>\n<\/blockquote>\n<\/figure>\n

And then there\u2019s the ever-present problem of the dearth of good assets. To thrive, and ultimately survive, a financial institution needs earning assets, namely, loans. Even in the best of times, quality credits aren\u2019t ripe for the picking. And who gets the best loans? Money-center institutions that can provide red carpet treatment and the best terms for the strongest borrowers. Smaller lenders then compete for what\u2019s left.<\/p>\n

This is what happened in the last recession. Between 2000 and 2008, banking saw a perfect storm of new charters. These fledglings were under extreme pressure to grow feathers and spread their wings, so a lot of lower quality loans got on the books that the reserves and net worth of the rookie banks couldn\u2019t sustain when the roof fell in. It\u2019s a banking mantra that, \u201cBad loans are made in good times\u201d and nobody knows they\u2019re bad until the next recession comes, which it always does.<\/p>\n

Which gets back to Sen. Warren\u2019s second area of concern about big banking fish eating minnows.<\/p>\n

The proposed legislation most likely won\u2019t pass, and even if it did, it would mean little. Government has never been able to repeal the Law of Supply and Demand. In good times, community banks in economically vibrant states, like Colorado, have always been in demand. Supply is limited. So buyers, money center institutions that want in on the action, pay a premium for banks like 2nd National of Downriver.<\/p>\n

And here\u2019s the scenario I\u2019ve seen time after time. 2nd National (First National went broke in 1934) gets a charter, struggles through the collapse of 2008, gets its bad loans off the books, and finally starts growing, building its capital account, and making some real money. Along comes MegaBank of the Western World, out of, say, San Francisco, which makes an offer the shareholders can\u2019t refuse, removes 2nd National\u2019s management team, lets some employees go, and turns the operation into a MegaBank branch.<\/p>\n

Who\u2019s the loser here? Surprisingly, MegaBank. The stockholders get a well-earned payday. The management team has stock, plus they get a severance settlement, so they\u2019re happy. The middle management people probably get a generous package as well \u2014 no complaints there. But MegaBank paid a premium to get, among other things, an operation embedded in the community, with intimate knowledge of a very specific market. And that particular asset has been written off from day one of the acquisition.<\/p>\n

And, maybe the people of Downriver lose something. It\u2019s kind of nice having a hometown bank competing with the TBTF across the street.<\/p>\n

Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He\u2019ll be happy to answer your questions or hear your comments. His e-mail is pdalrymple59@gmail.com<\/a>.<\/p>\n

via:: Post Independent<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Sen. Elizabeth Warren would like to see more small town banking institutions, so-called community banks. She believes that little banks in little towns are closer to their customers and can serve them better than the TBTF\u2019s (Too Big to Fail), and she\u2019s probably mostly right. She also believes that big banks merging with little banks […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[160],"tags":[],"class_list":{"0":"post-1318407","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-local-news"},"acf":[],"publishpress_future_action":{"enabled":false,"date":"2026-07-04 12:01:44","action":"change-status","newStatus":"draft","terms":[],"taxonomy":"category","extraData":[]},"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"KSKE Ski Country","distributor_original_site_url":"https:\/\/alwaysmountaintime.com\/kske","push-errors":false,"_links":{"self":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/posts\/1318407","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/comments?post=1318407"}],"version-history":[{"count":0,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/posts\/1318407\/revisions"}],"wp:attachment":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/media?parent=1318407"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/categories?post=1318407"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/tags?post=1318407"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}