Traditional community banks have all but disappeared

Banking shouldn’t be code for “legalized extortion.”  Photo: Community Bank

YAKIMA, WA, April 1, 2013 – Thinking of what has happened in the banking industry has really made this curmudgeon miss the “good old days,” when men were men and banks were banks. Going to the bank was necessary, like today, but it was also fun and enjoyable. Banks were local neighborhood financial centers where everyone knew each other. 

The bank president was usually an older man or woman of good standing in the community and who had worked his or her way up through the ranks. They belonged to a local service club and knew the bank’s customers by name. In the “good old days,” banks were customer service oriented, unlike banks of today. What happened?

One report showed that in 1988, the U.S. had 12,500 banks with $300 million or less in total equity, while 900 banks had in excess of that amount. By 2012, the amount of banks with $300 million or less had shrunk to 4,200 banks, but the amount of banks with deposit in excess of the $300 million burgeoned to 1,800 banks. In 1988, the U.S. had 13,400 banks, but by 2012, less than half of those banks still exist. Why?

A lot of experts could give you many sound reasons for why so many banks disappeared at this alarming rate. The truth is the financial community wanted to start mixing banking with the insurance market and with stock trading. Bigger banks start gobbling up smaller banks in a feeding frenzy that ended up with the disappearance of more than 7,000 banks.

Then in 1999, a Republican led Congress repealed the Glass-Steagall Act of 1933, which kept banking as a separate, highly regulated industry. The bill, known as the Graham-Leach-Bliley Act, passed with overwhelming bipartisan support in both the House of Representatives and the Senate. President Bill Clinton signed it into law on November 12, 1999.

In New York’s financial industry, the mean annual salary in 1981 was $80,000. By 2011, the mean annual salary had rocketed to $360,000. The average New York salary, in the same time period, rose only from $40,000 to $70,000. Do the math and you’ll discover why banks and finance industry giants lobbied to have Glass-Steagall repealed.

Along with the recent recession, deregulation also gave us five huge banks. Or are they financial institutions? It is very confusing. The five are JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs. The American taxpayer basically had to lend them all money in the bailout, because they were “too big to fail.” Maybe the failure of one or two of them would have been good?

Senator Sherrod Brown, D-OH, who is next in line for the chairmanship of the Senate Banking Committee, believes that banks need to be divested from stocks and insurance dealings.  He has indicated when a bank is “too big to fail,” it is too big.  He advocates smaller banks with reasonable checks and balances.

Getting back to banks that know your name and are staffed by seasoned, career people who will not try to sell you every service in the book would be refreshing.

Banking should not be code for “legalized extortion.” Banking should mean a place that your money reposes in security and safety. After all, we don’t live in Cyprus.

 

(Larry Momo writes columns for the Washington Times Community Section and the San Pedro News Pilot.)


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Larry Momo

Larry is an older folk who refuses to retire and won’t quit trying to contribute. His family has labeled him a curmudgeon but, hey, everyone knows that only young people are hopeful. Like most older folk, Larry believes that nothing much will change: petrol companies will still make billions; AT&T will continue to take over the World; Wal-Mart will still sell cheap plastic products for a bundle;   And, 56 million of us older folk will go to sleep every night secure in the fact that Congress will try to figure out how to cut more money out of the Social Security fund to spend on pork belly projects.  Maybe they could build a bridge to who knows where?  Now that I’ve enlightened you a bit about myself, enjoy Curmudgeon Corner--God knows, I love writing it.

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