January 15, 2014

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Banking and Finance

January 15, 2014

Rob, from your viewpoint, do you see strong economics? What are you seeing?

BOWEN: From our perspective as a smaller, community bank, we’re seeing some of our customers starting to firm up. They’re improving. Their balance sheets are improving. Their income statements are improving. Not dramatically, but better than what they have been over the last three or four years. They’re being very cautious. That is the uncertainty of the markets, the uncertainty of what’s the next shoe to drop. 

SUTTON: I sit on the board of a bank that finances retail sales, so we’re sort of financing the end of this whole economic process. And that seems to be holding together very well, and our volumes are holding steady. The core of the economy is there and it’s sound, and it would flourish if it were allowed to do so.

The problem is the political and regulatory dysfunction is creating uncertainty. I mean, uncertainty was the big thing last year when we did this roundtable. It has gotten worse. The disarray in Washington is historically bad. We’ve got a situation right now: The FDIC will not charter a new bank. There have been no new banks formed in the United States as a whole in five years.

BEARD: To me, the stock market is a good bellwether of what’s going on. It’s almost perverse, in that the worse the economy or the uncertainty gets, the better the stock market does. Because what it means is that the government’s in the box where they can’t break off and taper this back. It just seems counterintuitive. But the money is betting on the continued dysfunction of government for a fairly long period of time, as you look at where they’re predicting that interest rates and so forth are going.

SORENSEN: When you’re talking about the stock market, actually, people are looking for alternative investments. Right now what’s happening is the amount that they’re earning on investment portfolios is almost zero. So the stock market gives a promise to get a higher return. My take is the reason that money is flowing into that is not so much this dysfunction, but it’s based upon alternative investments and people saying, “I need to earn a higher return.” The stock market is easy, and I can bet on it.

BEARD: This may be a rat hole we’re going down, but my view of it is that we’ve grown accustomed to this uncertainty, and so it’s almost a fool’s theory that you bet that the economy’s going to be bad enough that they won’t drop the taper off, so you’re going to put it into the stock market. But everybody knows it’s not based on a fundamental. And so you’ve got this house of cards that’s built on government action, which is, in my opinion, shaky at best. And it does overlie a lot of the economics, including the flight of capital to various places.

DeFRIES: This is not related directly, but connects at a very much higher level. With all those banks that used to be in the U.S., the U.S. created something that no other economy was able to create for the last 100 years. The direction that we’re headed with really limiting the number of banks—we’re headed to what everybody else has in Europe and Canada, just a limited number of very large institutions. And I don’t think what made the U.S. great was to have a very limited financial system. It was that it really did have an ability to get closer to those entrepreneurs. Larger banks can be involved in that, but where we’re headed is not there.

SUTTON: My impression is that to have a thriving economy, you need a group of banks that’s really matched to the size of the customers of the bank. So you have community banks serving small businesses in the communities. You have medium-sized banks taking care of the regional businesses. Community banks can’t take care of large international corporations. You need a large bank to handle that.

There’s no question that we are drifting toward a situation with just a few banks. The current figures are the top 15 institutions, as of December 31st, 2006, have grown by 55 percent over the last six years, and the community banks have shrunk. That trend is happening, and nobody’s giving it any thought at all. It could have some serious consequences.

BLEGGI: The interesting thing is that’s all in the name of protecting the consumers, and it will have the complete opposite effect. It’s just going to hurt the products available to them. It’s going to be more limiting and more limiting and more limiting. The consumer regulation is just too tough to keep up with for a small bank. We’re a very small community bank, and we have a full-time compliance officer and 27 employees, and we need them.

Are consumer loans easier to get now or harder? It sounds like it’s much harder.

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