By Bill Crawford
“Obama Blasts Banks” for paying huge bonuses. Others slam “banks” for wielding what Warren Buffett called “financial weapons of mass destruction” and causing the financial crisis.
Hit ‘em with Evil-Eye Fleegle’s double whammy! Make ‘em pay!
Whoa, there, Nellie….
Every wagon is not the same (think King George’s carriage to Pappy Yokum’s turnip wagon). Likewise, every “bank” is not the same.
Until former Sen. Phil Gramm repealed 1932 Glass-Steagall Act prohibitions in 1999, there was little confusion over what a “bank” is. Gramm’s bill let holding companies swell into giant conglomerates owning banks, investment houses, insurance companies, and more.
Those blasting “banks” usually heap local banks into the same runaway carriage as “mass destruction” conglomerates.
Truth is, local banks, like other local businesses, are victims of the economic crisis.
Local banks are the commercial loan wagons that bring money to spur the economic activities of local businesses. When times are good, “natcherly,” local banks do well. When times get tough, the haul gets tough for local banks. When local businesses fail, local banks have to tighten their harnesses, spend down reserves to cover loan losses, and incur extraordinary expenses.
And, while conglomerates load up with bailouts and big bonuses, local banks get loaded down by the dreaded “double whammy.”
Because, when times get tough, bank regulators get tough on local banks. “Unfortunately, this can force banks to modify how they serve their customers,” said Mac Deaver, president of the Mississippi Bankers Association. “More regulation adds to the cost of doing business for banks, just like it does for everyone else,” he added.
The impact has been to tighten credit for small businesses at the same time the Federal Reserve loosened it for the big boys.
“Credit conditions for large businesses have largely returned to normal,” reads a January CNN report. “But small businesses have not enjoyed the same recovery. Sales are down at most companies, and the value of assets typically used as collateral – like real estate and goods in inventory – has fallen. That leaves many banks reluctant to lend to borrowers they view as risky bets.”
As Yogi Berra might say, small town economies are just like big national economies, just smaller. Tightening credit locally does the same thing it would do nationally, it slows down the wagons of economic activity.
The good news, Deaver says, is that Mississippi’s local banks are sound enough to take the double whammy. They just won’t be able to put as much giddyup into the local economy as they might.
“As any fool kin plainly see!” Mammy Yokum would add.
Bill Crawford, a former banker and legislator, lives in Meridian, MS. Email: firstname.lastname@example.org.