Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still
have trillions in bad derivatives gambling debts to pay off, and so
they are only loaning to the biggest players and those who don't really
need credit in the first place. See this and this.
So we don't need these giant gamblers. We don't need JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are lenders.
Small Banks Can Do Things Better Than Giants
The above-described Fortune article also points out that the banking giants are not necessarily more efficient than smaller banks:
The largest banks often don't show the greatest efficiency. This now seems unsurprising given the deep problems that the biggest institutions have faced over the past year.
"They actually experience diseconomies of scale," Narter wrote of the biggest banks. "There are so many large autonomous divisions of the bank that the complexity of connecting them overwhelms the advantage of size."
And Governor Tarullo points out some of the benefits of small community banks over the giant banks:
Many community banks have thrived, in large part because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms. Their business model is based on an important economic explanation of the role of financial intermediaries--to develop and apply expertise that allows a lender to make better judgments about the creditworthiness of potential borrowers than could be made by a potential lender with less information about the borrowers.
A small, but growing, body of research suggests that the financial services provided by large banks are less-than-perfect substitutes for those provided by community banks.
It is
simply not true that we need the mega-banks. In fact, as many top
economists and financial analysts have said, the "too big to fails" are
actually stifling competition from smaller lenders and credit unions,
and dragging the entire economy down into a black hole.
1 | 2
