Panel Looks at the Future of Community Banking

Monday, 09 Jun 2014 07:57 AM

By Robert Feinberg

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The Boston University Center for Finance, Law and Policy and the Office of the Comptroller of the Currency recently sponsored a series of panels titled "Building on 150 Years: The Future of National Banking" to mark the sesquicentennial of the agency, which is the regulator of national banks.

The panel was moderated by Andrew Calamare, executive vice president of the Co-operative Central Bank and former commissioner of Banks for the Commonwealth of Massachusetts and current chairman of the Federal Home Loan Bank of Boston. The most prominent panelist was Cam Fine, CEO of the Independent Community Bankers of America and a former community banker and regulator in Missouri. Other panelists were Karen Shaw Petrou, co-founder and managing partner of Federal Financial Analytics, and Sharon Bowles, a member of the European Parliament and chair of the Economic and Monetary Affairs Committee working to formulate uniform and consistent rules for the European Union.

Fine explained that the bank he founded and owned in Jefferson City, Mo., was solely owned by him and that there are 5,500 privately owned banks that operate under the radar. He declared that if there's another "Big Bang," the community banks will survive along with the roaches, despite the efforts of policymakers during the past 200 years to do away with community banks. He stated that at one point the intention was to put all banks into the national banking system, but this never happened. He credited community banks today with being tech savvy and appealing to Generation Y through their philosophy of relationship banking. With 19 percent of banking assets, community banks make 60 percent of loans to small businesses, which create two-thirds of jobs.

According to Fine, the two challenges community banks face are asset concentration and regulatory burden. He cited the control of more than 50 percent of banking assets and deposits by the six biggest banks as a source of systemic risk for the economy. The largest banks enjoy the support of the International Monetary Fund and the Federal Reserve, but Fine pointed to statistics showing that a third of the counties in the nation, representing 20 million people, are served only by a community bank.

He warned that concentration of assets in an oligopoly of the biggest banks is destructive to the free market system. He complained further that legislation enacted since the late 1970s to deal with problems in the big banks is enforced indiscriminately upon community banks as well, threatening the relationship banking model.

Petrou spoke on financial intermediation, starting with a figure of $71.2 trillion that the international Financial Stability Board estimates as the extent of financial activity conducted outside of the conventional banking system by so-called "shadow" banks. She recommended that the function of a firm, rather than its charter, determine the nature of regulation, as is the case in the European Union. Petrou agreed with the assertion of former Rep. Barney Frank, D-Mass., that the authorities will not bail out banks in the future because it is against the law, but that the market does not believe this.

Bowles described a system in the European Union that is much more dependent on banks, which account for several times GDP, and the European Union lacks the diversification that is provided in the United States by highly developed capital and swaps markets. The European Union is legislating frantically to put in place a system of regulation to contain threats to the financial system without a unified monetary and banking system.

(Archived video can be found here.)

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