There are 7, 500 banks in this country. Of those, 6,800 have asset sizes of a billion dollars or less. This diversity enables our banking system to support the world's largest and most dynamic economy, and it is what sets us apart from other countries whose banking industries are highly concentrated. Prosperous, American-based global enterprises — which do business with America's largest banks — beget mid-size suppliers that are served by regional banks. Small businesses in this supply chain are in turn nurtured by community banks, which work to make Main Streets across America vibrant.
Washington policymakers must acknowledge the reality and genius of this well integrated economic ecosystem and renounce the two-sizes-fits-all approach to bank regulation. They must also recognize that legislative edicts can't suspend marketplace dynamics or the law of supply and demand.
Take for example, the Dodd-Frank Act's arbitrary $10 billion asset threshold, which was used to "exempt" smaller institutions from Consumer Financial Protection Bureau enforcement and other provisions in the Act. It gives an $8 billion or $9 billion institution every incentive not to grow, and it incents those just over the line to shed assets, even loans that are performing.
This artificial boundary only pays lip service to the variety in the industry. It completely fails to provide the flexibility needed for an industry that includes retail banks, commercial banks, mutual banks, thrifts, investment banks and of course, community banks.
And we all know the community bank "carve out" in the infamous Durbin amendment doesn't work. If it did, you wouldn't have had all banks, large, small and in-between joined in an intense campaign this spring against Dodd-Frank's interchange price caps that technically only applied to banks over $10 billion.
The Federal Reserve is currently exercising its new Dodd Frank Act authority to review the Capital One-ING transaction. Some commentators are suggesting that the Fed should apply $10 billion asset threshold to proscribe merger and acquisitions. This line of demarcation makes no more public policy sense in this context than it did in the Dodd Frank Act.
I hope and believe the Federal Reserve will see this for what it is: another attempt to camouflage bad public policy under the guise of protecting community banks.
Frank Keating is the president and CEO of the American Bankers Association and a former governor of Oklahoma.
