OpEdNews Op Eds

Do We Really NEED The Giant Banks?

By       Message George Washington     Permalink
      (Page 1 of 2 pages)
Related Topic(s): ; ; ; , Add Tags Add to My Group(s)

View Ratings | Rate It

opednews.com Headlined to H3 8/5/09

Author 8941
Become a Fan
  (5 fans)
- Advertisement -

Bernanke, Summers and Geithner say that we can't let the giant banks fail, because - without them - the economy will be starved of credit and we will be plunged into a depression.

This isn't true.

Says Who?

If we really needed the giant banks, the following top economists and financial experts wouldn't have said that the economy can only recover if the insolvent "too big to fails" are broken up:

  • The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
  • Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard, and Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

The above-described leading economists wouldn't have recommended breaking up the banking giants if they thought that their survival was necessary for an economic recovery. Other lending institutions can step up to the plate to make loans.

Small Banks Can Fill Big Shoes

Fortune pointed out in February that smaller banks are stepping in to fill the lending void left by the giant banks' current hesitancy to make loans. Indeed, the article points out that the only reason that smaller banks haven't been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth for the nation's smaller banks represents a reversal of trends from the last twenty years, when the biggest banks got much bigger and many of the smallest players were gobbled up or driven under...

- Advertisement -

As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.

BusinessWeek noted in January:

As big banks struggle, community banks are stepping in to offer loans and lines of credit to small business owners...

At a congressional hearing on small business and the economic recovery earlier this month, economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks...

Indeed, for the past two years, small-business lending among community banks has grown at a faster rate than from larger institutions, according to Aite Group, a Boston banking consultancy. "Community banks are quickly taking on more market share not only from the top five banks but from some of the regional banks," says Christine Barry, Aite's research director. "They are focusing more attention on small businesses than before. They are seeing revenue opportunities and deploying the right solutions in place to serve these customers."

And Fed Governor Daniel K. Tarullo said in June:

- Advertisement -

The importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks...

For example, while the number of credit unions has declined by 42 percent since 1989, credit union deposits have more than quadrupled, and credit unions have increased their share of national deposits from 4.7 percent to 8.5 percent. In addition, some credit unions have shifted from the traditional membership based on a common interest to membership that encompasses anyone who lives or works within one or more local banking markets. In the last few years, some credit unions have also moved beyond their traditional focus on consumer services to provide services to small businesses, increasing the extent to which they compete with community banks.

Big Banks Aren't Really Focusing On the Lending Business Anyway

Since Glass-Steagal (the law saying banks couldn't use their customer's deposits to make speculative investments) was repealed in 1999, the giant banks have made most of their money in trading assets, securities, derivatives and other speculative bets, the banks' own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions.

Next Page  1  |  2

 

- Advertisement -

View Ratings | Rate It

George Washington


As a political activist for decades, I have rejoiced in victories for the people and mourned in defeats. I chose the pen name "George Washington" because - as Washington's biographies show - he wasn't a (more...)
 

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon


Go To Commenting

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Top Financial Experts Say World War 3 Is Coming -- Unless We Stop It

Indonesian Health Minister Says Swine Flu Might Have Been Man-Made | Epidemiologists and Virologists Need to Weigh In

Obama Is Considering Doing Something Even Bush Didn't Try: "Preventive Detention" of People Who Will Never Get a Trial

How To Solve the Economic Crisis

The Four Reasons the Mainstream Media Is Worthless

5 Reasons that Corporate Media Coverage is Pro-War