WSJ: The Demise of the Small American Bank

[PleaseBlitz]

Problem happens.

Law passed to fix problem (supposedly).

Problem continues to grow worse (supposedly)

Solution- repeal law designed to fix problem.

 

 

Repeat.

 

First, the concept as suggested is stupid.  Even if the problem was Frank-Dodd, all you'd do was go back to where we were before where there were banks that were too big to fail.

 

It isn't like that before Frank-Dodd banks didn't fail, weren't getting bigger, and them failing didn't cause huge issues.

 

Second, the idea is wrong.  Frank-Dodd wasn't made to prevent banks from getting big.  It was designed to make it less likely that banks would fail at least in the same manner that they did.

 

Nobody said when Frank-Dodd was passed that this will make banks smaller or was an advantage to smaller banks.

 

The objective of Frank-Dodd is to prevent the things that are really big from failing.  Not letting them get big.

 

Because before Frank-Dodd there were really big things and had been getting bigger.  Frank-Dodd takes on the assumption that there will be really big things.

 

I think too big of things are a problem (for other reasons), but if you look at things there are 2 possibilities;

 

1.  Prevent things from getting too big.

2.  Take extra precautions to make sure things that are really big don't fail.

 

Frank-Dodd takes the 2nd approach.

 

 

I don't really agree with this.  Dodd-Frank was a complete overhaul of the financial system.  The point was to BOTH 1) make it so "systemically important banks" would not crash the economy if they failed and also 2) to make them less likely to fail.  What it largely ended up doing was to make the systemically important banks even more important by pricing out smaller banks and therefore concentrating the industry into the larger banks.  Whether they are more or less likely to fail is debatable.  Nobody thought Lehman Brothers was in trouble 12 months before it died.  

Doesn't matter.

 

I went into my credit union with my daughter.

I wanted to get a loan on a $12,000 car.

Credit score is great.

 

Previous car loan and paid for.

 

They were pissed at me because I didn't use them for direct deposit.

 

Made me jump through all kinda hoops for a $12K car loan.

 

It was silly.

 

Told me if I direct deposited into their account the loan would be easier.

 

Nonsense.

 

They knew me and still screwed me.

 

Studies show that people jump back and forth between banks routinely, and the one factor that stops this is direct deposit.  It's just too much of a hassle to switch it, so people are very reluctant to do it.  That is why banks push it so hard.

[PeterMP]

I don't really agree with this.  Dodd-Frank was a complete overhaul of the financial system.  The point was to BOTH 1) make it so "systemically important banks" would not crash the economy if they failed and also 2) to make them less likely to fail.  What it largely ended up doing was to make the systemically important banks even more important by pricing out smaller banks and therefore concentrating the industry into the larger banks.  Whether they are more or less likely to fail is debatable.  Nobody thought Lehman Brothers was in trouble 12 months before it died.  

 

Yes to both, but part of Dodd-Frank was not to make banks smaller.  You can do 1 and 2 (in theory) and not make banks smaller.

 

I'm not saying that Dodd-Frank is working.  I'm saying that you can't say the Dodd-Frank has failed or even is a bad law because banks are getting bigger.

 

Its objective was not to make banks smaller or prevent them from getting bigger.  If it does 1 and 2 from your post even if banks are larger, than Dodd-Frank has worked.

 

I'm also not sure that Dodd-Frank is actually eliminating smaller banks.  That has been an on going issue.

 

12-31-1992: there are 13,973 banks, the top asset bank has ~$163 billions in assets

12-31-2005: there are 8,845 banks, the top asset bank has ~$1.1 trillion in assets

12-31-2009: there are 8,021 banks, the top asset bank has ~$1.6 trillion in assets

(all before Dodd-Frank is passed)

12-31-2011 (Dodd-Frank is law, but most provisions are not in affect): there are 7,336 banks, the top asset bank has ~$1.8 trillion dollars in assets

3-31-2015: there 6,428 banks, the top assent bank has ~$2.1 trillion in assets

 

http://www.usbanklocations.com/bank-rank/total-assets.html

 

Big banks have been getting bigger for decades.  I'm pretty sure the housing bubble crash exacerbated the issue.  It is possible that Dodd-Frank has too.

 

I don't know.

 

If we want to help small banks, we should do that.  I'd support that, but that can be done without repealing Dodd-Frank (we might want to make some modifications to it).

 

If you get rid of Dodd-Frank, you are going to have big banks and lose whatever you do get out of Dodd-Frank in terms of reducing the chances of them failing and reducing the effects that they will have if they do fail.

 

There is no real reason to believe that small banks are coming back if you just get rid of Dodd-Frank.

[PleaseBlitz]

I get what you are saying.  My point is that, if your overarching goal is to make a small number of entities LESS systemically important and therefore less likely to negative impact the economy should they get into trouble, one obvious way to do this would be to diversify the industry, that is, make it less concentrated in the 10 largest banks.  Dodd Frank is doing the exact opposite, when it could have been a vehicle to incentivize industry diversity (and was sold to the public as doing just that). 

[Jumbo]

I like to wonder what would happen if we stopped electing lawyers and business owners and started electing middle class people that have spent most of their lives holding down jobs in diverse fields.  People that understand the grind of real american life.  Also, of course, banned all donations other than volunteering time from politics and allowed lobbyists to only meet with staffers, never the elected rep, and only in government offices where they could provide no benefits other than their opinions and requests.    

 

There is a great chance of bringing dinosaurs back to life and electing one of them President.  It's a pretty thought to hold in my head though. 

 

 

There's one Clancy novel* in the Jack Ryan saga where the US gov has most of its leaders inc. congress killed via terrorist attack (read it when it came out, so remembering from back then).

 

They end up replacing these folks with emergency elections where they basically follow your outline, Des, taking the "opportunity" to try to "return" elected positions "back" to that supposed "founding fathers" concept of "regular people serving the good of all the people" and doing so "even at personal sacrifice" more than serving egocentric ideology and advancing personal fortune. The quotes indicate that I consider much of our pop history to be prone to self-serving/comforting mythology.  

 

And I know it's a simplistic "wishful thinking" scenario that probably belongs more in the science fiction genre than the spy/international politics genre, but I admit it has that warm and fuzzy appeal to me. 

 

 

*Sum of All Fears? (man, that good-fun read was made into a disappointing movie, unfortunately).

[PleaseBlitz]

There's one Clancy novel* in the Jack Ryan saga where the US gov has most of its leaders inc. congress killed via terrorist attack (read it when it came out, so remembering from back then).

 

They end up replacing these folks with emergency elections where they basically follow your outline, Des, taking the "opportunity" to try to "return" elected positions "back" to that supposed "founding fathers" concept of "regular people serving the good of all the people" and doing so "even at personal sacrifice" more than serving egocentric ideology and advancing personal fortune. The quotes indicate that I consider much of our pop history to be prone to self-serving/comforting mythology.  

 

And I know it's a simplistic "wishful thinking" scenario that probably belongs more in the science fiction genre than the spy/international politics genre, but I admit it has that warm and fuzzy appeal to me. 

 

 

*Sum of All Fears? (man, that good-fun read was made into a disappointing movie, unfortunately).

 

 

Everyone dies at the end of Debt of Honor (via commercial airliner crashed into the Capitol Building during the state of the union), and then Jack Ryan assumes the presidency at the beginning of the next book, Executive Orders.

 

And, as I recall, the new "regular guy" head of the Dept of the Treasury was a former Wall Street guy slash billionaire, so it was exactly like the system we have now.

 

Also, while all of this is going on, Iran unleashes a terrorist attack on the US, i think involving Ebola (so hopefully not like real life, but it might happen ).  

[Jumbo]

Thanks PB. I knew I had it wrong on "Sum"---mainly because i remembered the bad movie had none of that stuff in it. Now much of the rest of the plot in the book comes back to me--like how that one Wall St "good guy" (kind of a Branson-like character) you mentioned was key in the stabilization. Sorry for the OT. 

[PokerPacker]

I didn't quite get that far into Clancy. I need to pick up one of those books again (I've got all of 'em sitting on my bookshelf).

[PeterMP]

I get what you are saying.  My point is that, if your overarching goal is to make a small number of entities LESS systemically important and therefore less likely to negative impact the economy should they get into trouble, one obvious way to do this would be to diversify the industry, that is, make it less concentrated in the 10 largest banks.  Dodd Frank is doing the exact opposite, when it could have been a vehicle to incentivize industry diversity (and was sold to the public as doing just that). 

 

I understand that, but that isn't the point of Dodd Frank.

 

The objective of Dodd Frank is to create more regulation (especially of large banks) to try and keep them from failing.

 

In theory, yes, you could diversify the industry (as I said in the initial post that you responded to. Right, I listed two options and more diversification in the industry is essentially option #1), but that was never the objective of Dodd Frank.

 

I'm not even sure that Dodd Frank is significant contributor in the reduction of banks and the growth of large banks considering the trend easily pre-dates Dodd Frank, but let's say I even concede that point.  That isn't really evidence that Dodd Frank isn't working.  If the fewer banks that are left are less likely to fail or there is a better system in place to handle it when they do fail, Dodd Frank is working.

 

In addition, wanting more small banks isn't a really a reason to repeal Dodd Frank.  If you repeal Dodd Frank, you aren't going to go bring back the number of banks in 1993, 2005, or even 2010.

 

I'd like to see more small businesses at the expense of larger businesses, including banks.  I don't love Dodd Frank.  I'm not saying Dodd Frank is working.  Dodd Frank might be a bad law.

 

But the fact that are more larger banks isn't evidence that Dodd Frank isn't working and that's it is a bad law.

 

And repealing Dodd Frank is just going to create a situation where there are banks that are too big to fail without the regulations in Dodd Frank that are at least supposed to be helping to ensure that they don't fail.

 

I should add that there is a limit on the size of banks, and there has been talk of changing its enforcement (mostly by Dems).

 

http://www.ilsr.org/finally-bill-reinstate-limits-bank-size/

 

But I'm pretty sure right now BoA is over the limit and for various reasons the law is not being enforced.

[TheGreatBuzz]

Everyone dies at the end of Debt of Honor (via commercial airliner crashed into the Capitol Building during the state of the union), and then Jack Ryan assumes the presidency at the beginning of the next book, Executive Orders.

 

And, as I recall, the new "regular guy" head of the Dept of the Treasury was a former Wall Street guy slash billionaire, so it was exactly like the system we have now.

 

Also, while all of this is going on, Iran unleashes a terrorist attack on the US, i think involving Ebola (so hopefully not like real life, but it might happen ).  

I've always been a big Tom Clancy fan and have read them all, in order, multiple times.  The thing with the Wall street guy was he was actually a good guy.  Not like the Wall Street billionaires today (doubt they really existed back then either).  I remember one part where he takes the entire US tax law and puts it on a weak table during an address to Congress knowing that the table would break under all the weight.  I would love to see someone do that today.

[chipwhich]

Studies show that people jump back and forth between banks routinely, and the one factor that stops this is direct deposit.  It's just too much of a hassle to switch it, so people are very reluctant to do it.  That is why banks push it so hard.

 

Regardless, I have had the account with the credit union for over 20 years.  They gave me the loan, but made sure I will never give them by business again.