Past generations have seen all this before. That is why for nearly three decades the Independent Community Bankers of America has warned that our financial system was becoming dangerously over-concentrated and that there would be ruinous consequences.
Now ICBA's warnings are reality — again.
The financial-structure policies of several recent administrations, plus those of a very encouraging and accommodating Federal Reserve Board, have led indirectly to the bailout of Bear Stearns. For nearly 30 years national policymakers have allowed our financial system to become so concentrated at the top that it resembles the equivalent of European royal inbreeding — every entity is related (directly or indirectly) to every other entity.
Who will pay for this mess? Community banks, small businesses, and ultimately consumers and taxpayers in the form of higher operating costs, much greater regulation (which falls hardest on the community banks that can least handle it), and higher fees and transaction costs. Ultimately, we will all pay for this mess.
While Wall Street is accommodated by Washington policymakers, and the executives of the Wall Street firms that caused this train wreck walk away with hundreds of millions of dollars in their pockets or are allowed to stay in their multimillion-dollar jobs, community bankers struggle under new regulatory burdens.
To say that the community banking industry is upset would be one of the great understatements of all time. When is enough enough? How many times must the community bankers on Main Street pay for the sins of Wall Street through more burdensome regulations and harsh examinations as an overreaction to situations they did not create?
The community banking industry is the bright spot in this current storm. For the most part, community banks are well-run, highly capitalized, and closely regulated institutions that are not generally experiencing the credit and funding problems making headlines today.
The Wall Street type of investment banking activity is a very different business from that done by community banks on Main Street. Community banks are locally owned lenders whose deposits are invested locally and whose business depends on the good health of the communities and consumers they serve.
The Wall Street banks and brokerage houses caused much of this financial chaos, but community banks will also be tarred by the broad brush of new and burdensome regulation. These regulations will be piled atop the regulations already choking Main Street banks. Does this make sense? When do national financial policies become so counterproductive that economic growth is harmed at the grassroots level? Why are "all banks" targeted when only a handful of the largest Wall Street firms and irresponsible, unregulated mortgage lenders and brokers caused most of this mess?
Congress and federal regulatory officials are right to call to task the investment and banking officials who caused this turmoil and should be held accountable, but the focus must be on those who caused the breakdown, not on the community bankers who had nothing to do with it.
Let's bring sanity back to our American financial system and stop allowing the creation of these behemoths that are too big to fail, too big to punish, too big to regulate, and too big to manage.
