In Congress there is a growing concern over the massive growth of the largest banks in our system and the expansion of tax-favored credit unions beyond previous expectations.
Here is the problem: America is suffering a loss of traditional community banking in too many communities in a relatively short period, and neither the credit union nor the large bank supplies this kind of banking in these communities.
Without standard and traditional banking services, communities ultimately become little more than adjuncts to the nearest banked community.
There are two primary causes.
First is the lack of limitations on the size and, yes, the conduct, of very large banks. This has led to "loss leader" techniques in both loan rates and investment yields, two key factors that often render community banks incapable of maintaining a profit level sufficient to resist a purchase offer from a larger financial institution.
Second is credit unions' "free grazing rights," plus the ability to maximize their tax advantage. They can "cherry pick"-choosing where and with whom they will do business. Obviously they will seek out areas where they can operate profitably. With rare exceptions, these are places served by traditional community banks.
Congress appears to be close to taking steps to revitalize America's community banks-a move that would definitely be in the public interest. Community bankers in all 50 states are active in promoting the certification of institutions that lend insured funds.
The idea of technically defining what constitutes a "qualified community lender" has grown out of an industry-developed proposal to the point where it now has the support of a broad segment of society that relies on community banks for their financial-industry needs.
No one questions the legitimate role of the credit union, and no one questions the role of the large bank, but there are millions of Americans whose broad and unique range of banking needs are not provided by either of those types of institutions, nor are those institutions qualified to engage in community-type banking.
People who choose to do business with community banks know the difference. They feel they have a right to make that choice.
Being legal doesn't make something right. The threat of competitive elimination of community banks through legislation reflects the political clout of both the credit union and big-bank lobbies. What they are doing may be legal, but that does little to lessen the hardships among the clientele they are serving.
Tax-favored credit unions use their tax preferences to their competitive advantage, and no one would expect otherwise. Large banks operating in dozens of states siphon money from small communities when the demand is high, and this, too, is a predictable result of the relaxed concern over antitrust and anticompetitive practices.
The resulting decimation of bank resources can leave many local lenders hard-pressed to meet the needs of their communities. It has become rarer and rarer to see buyout offers turned down as these problems pile up for the community bank.
Helping preserve the independence and uniqueness of the parts of America they serve is a widely recognized role of the community bank. Yet hardly anyone believes there is a danger of losing their hometown bank-until it happens. And then it is too late.
People from areas that have lost their community bank say they can find no ample substitute. And they are right. No two communities are alike. Each has a unique character and a special reason for existence.
Congressional support for the restored health of these vitally important institutions is bolstered by individuals as well as agricultural and small- business interests-people who see a correlation between the loss of a bank and the overall negative impact on its trade area.
Recalling the disastrous result of permitting the thrift industry to use unqualified people to make unwise and sometimes dishonest loans to unqualified borrowers, regulators recognized the validity of establishing basic qualifications for the use of insured funds for the making of a loan. The losses were painful: possibly more than $1 trillion in the past 15 years, attributable to a combination of stupid and criminal lending of insured funds.
A "qualified consumer lender" designation would be an important forward step in the field of professional lending.