PayThink

Behind closed doors they live in a constant state of fear, ducking calls from bank and servicing representatives, opening certified letters with shaking hands.

I am sad to see Cam Fine of the Independent Community Bankers of America resort personal attacks on me and my firm in response to my comment, "TAG Actually Gives Big Banks the Advantage." I can imagine that my comment stung a bit, but Cam and all of the people at ICBA know that I am one of the most vocal advocates for community banks in the U.S. Indeed, our firm is focusing a great deal of time and effort to help small banks raise capital and compete with the too-big-to-fail banks.

Before moaning about unbanked consumers and their supposed lack of financial literacy, bankers, federal regulators, lawmakers might consider that there once was a product that targeted this situation.

With all due respect to my friend Chris Whalen, the view from Main Street in Ashland, Missouri; Newman Grove, Nebraska or Pine Mountain, Georgia is much different than the view from the 26th floor of West 57th Street in New York City.

The Federal Reserve Board's stress test for the largest bank holding companies has been compared to a treadmill, on which patients are told to exert themselves so doctors can see how long they'll last. But, is the stress test in fact a financial analog to proven medical science so that we can indeed judge just how healthy big bank holding companies are after the Fed gets done with them?

In the depths of the financial crisis, the FDIC under Chairman Sheila Bair extended 100% insurance coverage to non-deposit transactions balances of all banks. Known as the Transaction Account Guarantee program, this extraordinary extension of FDIC insurance coverage to all transaction balances was a good idea at the time, but should be allowed to expire at the end of the year.

Sales officers and pricing desks frequently misjudge customers' sensitivity to rates and overpay for deposits. Similarly, banks that underestimate duration leave money on the table.

Is it inevitable? Will community banks as we know them cease to exist over the next 10 years, with large, regional and multi-state banks along with credit unions left to fill the gap?

The current U.S. tax code represents decades of political manipulation rather than any grand design, and can certainly be improved upon, but only a tax neutral pro-growth tax reform can prevent the deficit from spiraling out of control. Hence tax reform should favor saving over consumption and productive work over leisure, but otherwise be neutral, allowing capital and labor to flow to their most productive use.

To date, the public dialogue about the Transaction Account Guarantee program has been divided between the political and reputational risks of continuing this extraordinary federal insurance and the potential liquidity crisis that could ensue if the program ends prematurely and abruptly.