Nothing lasts forever as evidenced by the short term marriage of Hollywood stars. Differences in attitudes, status and in some cases just irreconcilable differences often cause breakups following many years of being together. One of fraying relationship is the 100 year plus association between the 6,000 plus smaller community banks and the nation's largest banks. This long standing relationship between big and small is on the rocks as the two groups have drawn apart, rarely working together or supporting one another anymore.
Over recent years all banks have become subject to public loathing, increasing regulation, and required to maintain more capital some in the form of systemic capital as required of the larger banks by Dodd Frank and Basel III. All banks and their bosses are the targets of the Occupy Everything groups, accused of destroying the values and opportunities of the bottom 99% of America while many banking executives receive incomes some consider larger than life.
Unfortunately the community banks of this country are thrown under the bus by just being a bank. They have been unable to disassociate themselves from extra costs and lost credibility resulting from the scared reputation of the bigger banks. Today the community banks are subject to the same increased regulatory burden, increasing capital and general public disdain as the larger bank.
For years the big banks and community banks coexisted in friendly competition serving different market segments with similar products. Today the big bank's principal focus is on larger customers and markets and low-cost technically based products and services many of which are now offered in competition to the community banks. In addition big banks historically helped and serviced the small banks clearing and funding needs, offered capital support, loan participations and even lavishly entertained the small bank officials at banking conventions. They wanted to provide accommodative profitable support services to their lesser brethren who would willingly serve the smaller customer of the local community.
It's difficult to leave a long relationship, but the two groups have little in common anymore competing for customers and offering little cooperative support. At the same time the community banks bear the common reputation and regulatory burden of the larger banks and that has become costly and an impediment to their success.
It's time for community banks to differentiate themselves from the big banks in the eyes of the public, the legislatures and the regulatory community. They must seek regulation under a different set of expectations, consistent with their size, capabilities and the ability to compete consistent with community opportunities.
An organized campaign of community banks should begin to disassociate community banks from the large banks and most specifically any accountability for the 2008 financial crisis. The public, Congress and the administration as well as the press should be the target of that effort and in gaining a clearer understanding of the necessary role of community banks. The ability to have community banks able to raise local capital and function to advance the needs of the local consumers and small businesses is essential to many local communities and the overall economy.
It must be understood that local community bankers aren’t getting personally rich but are working to serve and often become leaders of the local community. It must be recognized that community banks don’t and can't have the resources to meet the plethora of regulatory and legislative requirements which are common to those required of the larger banks.
Presently the community banks are diminishing in number because they can no longer effectively compete with the larger banks unless they have achieved a scale of nearly a billion dollars in assets. Many communities can't support that size of a local bank or can't offer enough capital to support the banks existence. As a result few new banks are being formed and many once successful local banks are being merged into bigger entities or the customers forfeited to the larger banks local branch.
The community banks should work to convey a message that they should and must stand alone if they are to remain. They must be divorced from the larger banks both in reputation and regulation if not name. I am always reminded that the average community bank is one ten thousandth the size of Bank of America but to their local community their existence and relevance is much greater.
Robert H. Smith, the former chairman and chief executive of Security Pacific Corp., is a founder and director of Commerce National Bank in Newport Beach, Calif.