When Jesse James was asked: Why do you rob banks?” He replied, “That’s where the money is!”
Recently, I wrote a column on the corrupt practices of the mega-investment banks whose policies caused the Great Recession.
I failed to discuss the challenges of the local bank as the government continues to adjust needed regulations to ensure a bank’s health.
A bank’s central function is – putting a community’s surplus funds (deposits and investments) to work by lending us money to buy homes and cars, to start and expand businesses, to put our children through school and other activities.
Local banks are still our first choice for savings, borrowing,and investing.
Let’s review the historical context.
In the early days of our Republic, the Bank of the U.S. (1791) was initiated by our first Secretary of the Treasury, Alexander Hamilton. The loans were very short, 30-60-day notes, primarily to manufacturers, shopkeepers and farmers so they could pay suppliers and workers until they could sell their goods.
When President Jackson removed federal deposits from Bank of the U.S. in 1833, the States began to supervise banks. Problem: State banks made loans using their own currency (notes). By 1860, there were about 10,000 different bank currencies (notes) throughout the country.
There was a clamoring for a regulation of a uniform national currency accepted everywhere without risk.
Finally, in 1864, President Lincoln signed the National Bank Act which created a government agency led by a Comptroller of the Currency whose job was to organize, supervise a new banking system through regulations and examinations of practices.
However, by 1929, the U.S. banking system failed during a worldwide depression. Over 1,000 U.S. banks failed, causing a panic of customers lining up to take their cash out of their local bank before it ran out.
After Franklin Delano Roosevelt was inaugurated president, he called for a Bank Holiday, closed banks for an examination of their solvency (March 1933). The bulk of the work was done by the Office of Comptroller of the Currency (OCC). In June, the next step was to create the Federal Deposit Insurance Corporation (FDIC) to cover depositor’s money in case of a bank failure.
Beside our churches and schools, the local bank is a foundation of how we can live.
Recently, I interviewed a local bank president. He said, “What most customers want is simple: safety of principle is more important than return on investment (ROI)”.
He started by saying that “regulations are needed to combat fraud and abuse.” “Good banking is produced not by good laws, but by good bankers”.
He added some additional concerns for our local banks:
1) There needs to be a “Sundown of old, outdated regulations that create duplicate reporting.”
2) The redundant regulations and duplicate reporting require duplicate staffing.
3) “Fraud has really increased with elderly customers in our community.” The government(s) need to provide resources to help the local banks prosecute fraud.
4) “Negative Amortization” loans, an upfront low payment loan to buy a house, then in 3-plus years the borrower cannot afford a new higher payment, should not exist.
According to John Dillard at Big Sky Associates, an Economic Development firm, the main Challenges and Opportunities of the Local Bank are:
1) Outdated regulations are a burden to the local bank, but their agility to implement better regulations can be an advantage.
2) Even though the needed regulation costs have increased, the local bank can overcome that by emphasizing the safety net and guardianship that it provides for the community.
3) When there is a sluggish economy, the local bank will have to do more with less, but they are more flexible, have personalized service and customized loans.
4) Keeping up with technology is difficult and expensive, the local bank can use “cloud” platforms and debit cards.
5) With competition like Amazon, local banks can establish personalized relationships and trust.
We can all agree that the objectives of financial and banking regulations are market confidence, financial stability, and consumer protection.
The local bank becomes the guardian of the local economy and its citizens.
Like the New Deal era, Democrats support a smart, regulated financial and banking system!
Marshall Ward is a Murray resident who is a member of the Democratic Party. He may be reached at firstname.lastname@example.org.