This is great information on the state of banking.  BankTrends, in particular, breaks out the performance of community banks and large banks. 

http://banktrends.wordpress.com/2011/11/09/q3-bank-performance-community-regional-and-mega-banks/

With a country focused on greed, over-spending, and debt, there appears to be a growing sense of frustrtion towards the government and banks, as evidenced by the Occupy Wall Street movement.  I believe this movement lacks organization, and for the most part, a singular focus.  Despite this, I can’t help but think that it represents the growing frustration our country has with the way government and business tie together.

It is actually very ironic.  The ongoing political angst in Washington seems to divide between Republican and Democrat, government and business, social and capital.  Yet the very same political system that has created these divisions also seeks to leverage each in order to achieve power.  People are becoming very frustrated by this paradox.

My favorite book is The Tipping Point by Malcolm Gladwell.  I can’t help but take an unbias view of the entire monetary system and wonder how it will evolve over the next several years.  Too often government and business forget the power of the average citizen.  Whereas the thoughts of one cannot create change, the thoughts of millions can have a profound effect on an entire system as we know it.  I believe the debit card fee fiasco is the perfect example of how decisions are actually made in this country.  Big banks were bailed out by the government.  In the minds of the public, big banks are a part of the government. 

So therein lies the shift that may be underway.  As we began to become concerned that community banks may become irrelevant with increased regulatory burdens, it appears that a majority of Americans would prefer to do away with the conveniences of big banks and invest into the banks that they feel are an arms length distance away from government. 

The problem is that people are frustrated with government and big business/greed/corruption.  It seems as if the story behind credit unions is beginning to resonate.  People are hearing that

1) They are shareholders

2) They have voting decisions

3) Directors are elected by members

4) Their money is insured, but not by the FDIC

I think this is becoming very interesting.  Between now and through 2012, will people really begin to pull deposits from big banks and invest in community banks and credit unions?  And if so, will the SHIFT be more towards credit unions or community banks?  And perhaps even more importantly, what will each do in order to retain these core deposits?  A majority of those upset with the state of the industry are younger people.  Younger people tend to change courses often.  And more importantly, they tend to love convenience.  The products and services to retain these core deposits can only be achieved through non-interest earnings, whethere or not it is a community bank or credit union.  Regarding credit unions, there is currently a bill in congress that attempts to raise the cap on lending within credit unions. 

In either case, I believe a tipping point in being created.  Big banks built a business model on convenience.  It was not possible to see the dynamics that were underway and the ultimate shift it would create in consumer attitudes.  Credit Unions are telling a story that is becoming very attractive and hits on the frustration so many people have.  Community banks need to begin doing the same.  Community banks have shareholders, it is not member based.  However, the ability to create innovative products and services is often a result of the opportunity to enhance shareholder value and take managed and appropriate risks.  Ultimately, community banks may be in a much better position to retain these core deposits.  Further, they will have the ability to lend to the communities in which they serve.

We are working with community banks to help tell this story.  We support and appreciate the ABA and ICBA in their efforts towards the community banking model. 

If you have read my past posts then you undoubtedly understand my position regarding regulation and compliance and the effect it is having on the banking industry, and subsequently, small businesses.  I want to point out that we believe that a degree of regulation is absolutely necessary in order to protect consumers.  Without proper oversight creditors have the ability to leverage deposits in a manner that exposes risks beyond what a customer would ever expect.

Let’s tell it like it really is…..many banks began to operate in an incredibly irresponsible way.  Directors and Management of banks are to drive profitability in order to support a desired lifestyle.  This is capitalism at its greatest.  However, in 2004-2008, as money flowed freely, this line was crossed and many Directors, and subsequently management, began to act irresponsibly and utilize bank funds that had yet to realize a return. 

Stories of lavish weddings, vacations, and bonuses demonstrate the ignorance many bankers had of the true risk that resided in their portfolio.  When the portfolio did not perform, the decisions to improperly manage capital led to these banks closing, and subsequently, lawsuits from the FDIC.

These actions and the resulting costs to the FDIC have had a ripple effect on our economy.  It has led to uncertainty in the credit markets and a near freeze on credit.  I commend the FDIC’s approach to troubled assets nationwide, and I believe their plan of action in dissolving of assets has helped prevent further deterioration, particularly with commercial and LAD loans. 

In situations like the one we have all faced, it would make sense that there needed to be oversight in order to avoid these events again.  Throughout history, America has shown itself to learn from its mistakes…..hence Dodd Frank, Consumer Protection, and numerous other regulations being passed down to the financial services industry.  However, in order to believe that this is a positive and one that would prevent troubles in the future, one would have to believe that oversight and regulation did not previously exist.  Perhaps that is where there is a disconnect.  The average customer does not understand the amount of oversight that existed in the credit markets.  The FDIC, OCC, Federal Reserve, and State Boards have all been active for decades in monitoring and examining banking institutions.

Is it possible that as banks began to look past potential problems and risks in light of strong economic times, so did regulatory agencies?  When banks approved loans regularly that did not meet the safety and soundness guidelines within their own credit policy, did regulators dig deeper into the true reason behind the approval?  This is not an attack against regulatory agencies.  I am simply pointing out that when people suggest a repeal of Dodd Frank, they are not suggesting oversight is not needed, they are simply suggesting that the oversight that existed should be improved.  Over the past few years, banks have become extremely conservative in their lending standards.  They now realize the inherent risk that resides within their portfolio and the potential impact of decision making.  Conversely, the regulatory agencies now understand the risks of not looking at a bank close enough.  Of not asking enough questions.  This is how a healthy banking system with proper oversight should look. 

I agree that there needed to be some changes, but a quick and over-aggressive response makes the assumption that we are incapable of learning from our mistakes.