Whither Community Banks? Slate blogger Matt Yglesias ruffled more than a few feathers when he suggested the U.S. had too many banks and that small banks should be absorbed by regional ones. Our Washington Bureau Chief Rob Blackwell immediately jumped to community banks’ defense, debunking several of Yglesias’ assertions. "[Small banks’] existence is uniquely American, and while they have made plenty of mistakes, they pale in comparison to those made by their larger brethren," Blackwell wrote. "If you are worried about the safety of the economy, you want more small banks, not fewer. They pose less systemic risk and their failures are uneventful." Readers were also quick to defend the role of community banks. "The market every day (albeit with some significant regulatory distortions) is deciding how many banks, and of what types, there should be in America," wrote the American Bankers Association’s Wayne Abernathy. "The answer is ‘many’ and of a variety of types, sizes, charters, and business models." Another commenter wrote,"big banks are consistently validating the business models of community banks." Next, AB Community Banking Editor Paul Davis envisioned a world where 99% of banks had disappeared. "Reduced lending, fewer leaders in times of crisis and less innovation – that’s what we’d have if only the biggest banks were allowed to survive," he concluded. Readers agreed eliminating that much of the industry would have serious downsides. "Let's not forget the support that community banks provide to the nonprofits in their community," one reader wrote. "These agencies can't navigate the big bank's labyrinth (usually located out-of-market) to secure grants, and usually don't meet their narrow grant making guidelines." Another reader added, "If we had very limited banks, who will listen to or treat Main Street reasonably or respectfully?"

Anticipating the Volcker Rule: Ahead of the Dec. 10 unveiling of the long-awaited Dodd-Frank provision, frequent BankThink collaborators William Isaac and Richard Kovacevich once again urged regulators to keep the Volcker Rule simple. Meanwhile, Kevin Petrasic of the law firm Paul Hastings suggested regulators consider whether the final rule’s benefits outweigh its costs. "Like it or not, the ball remains in the regulators' court," he wrote. "How they respond in the coming months and react to the Volcker Rule's inevitable implications will be of much greater consequence than what we read about next week."

Columnist Potpourri: Risk Doctor Cliff Rossi argued that risk of lender concentration in government-backed mortgage securitization pools was being overlooked in the housing reform debate. Meanwhile, retail banking maven Dave Martin urged bankers to take a lesson from Blockbuster Video’s ultimate demise, given its failure to adapt a branch-driven business model. "There are many reasons to believe that branches will continue to play a critical role in how and why consumers choose a bank for the foreseeable future, even as branch transactions decline," he wrote. "But the optimal size, location, and functions of branches in the next decade will assuredly be different than in the last."

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