Banker’s Choice: Traditional Bank or Independent Entity

Banker’s Choice: Traditional Bank or Independent Entity

The banking system has gone through a metamorphosis over the last two decades. The consequence of deregulation is supranational banking entities that have footprints in multiple markets or across all fifty states, and business segments are expansive outside the traditional bank business. This expansion of the banking entities outside a geographical location and outside the traditional consumer banking role has reallocated the priorities of selective institutions away from the traditional banking role in the community as a safe haven to deposit monies and obtain loans. This decision of the banking industry to shift primary business focus on business segments not related to traditional banking business is having unintended consequences to the communities served. Several consequences include collapse in small business innovation,  robust savings and credit products beneficial to the consumer, and the financial health of the consumer base. Our banks are going through a metamorphosis, and the regulatory systems supporting these entities should adapt to these changes.

The Federal Reserve Bank and Federal Deposit Insurance Corporation(FDIC) should work together to separate banking companies into two entities of Traditional Banking Charter or Financial Services Independent Charter.  The Traditional Banking Charter must meet obligations in traditional banking business or benchmarks to recognize profits in external business segments. The Traditional Banking Charter will continue to have access all the benefits provided by Federal Reserve Bank and the FDIC.

The Financial Services Independent Charter will not be restricted to meet community banking benchmarks to recognize profits from external business segments. These entities are not eligible for the benefits of the Traditional Banking Charter. The banking insurance for consumer deposits and Federal Reserve loan window should be fractional or lessened for  the entities who do not choose to abide by traditional banking practices.

Why is this needed? The relationship of the bank in the communities has been essential in the post World War II in driving economic growth and consumer confidence.

Since the end of World War II, the world’s economic powerhouse has been the United States. One dynamic to this economic strength is the extension and accessibility of credit to consumers and small businesses throughout the United States. The relationship of banker and consumer. This confidence was the catalyst to recovery during previous economic downturns. In this recession, the factor of trust has vanished in the shared relationship of banker and consumer. Therefore, the credit collapsed has caused the a fracture of confidence banking system.

The community banks were the driver of local innovation, widespread driver of middle class prosperity, small business and community project financiers, and the partner in sustainability of the local community both large and small. The last twenty years have changed the role of the banks.

The banks should have a choice of the business model of the future. Full FDIC and Federal Reserve Bank benefits require meeting traditional banking business first, or full recognition of profits without meeting traditional banking business benchmarks equal less safety and access.

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