When your competitors start moving the goalposts, you must be doing something right. A new report from one of the megabanks that contributed to the recent Wall Street financial crisis is defending these institutions and taking on community banks. According to American Banker, the JPMorgan Chase paper says that megabanks lend more relative to their size than do smaller institutions.
How can this be? The Federal Reserve Bank of Dallas recently released the latest in a long series of reports from regulators that have found community banks to be the industry leaders in business lending relative to size. So, what’s changed?
Well, apparently it’s the calculation. JPMorgan has simply changed the rules of the game. In its paper, the megabank expands the definition of credit to include categories of funding that rarely apply to community banks, such as municipal bond originations and residential mortgage securitizations. By simply adding in other sources of funding to the traditional measures of bank lending, JPMorgan has concluded that the megabanks come out on top.
Well, that’s convenient. Of course, every other measure of bank business lending finds that, pound for pound, community banks reign supreme. While they represent a small fraction of the banking industry’s total assets, community banks with less than $10 billion in assets provide nearly 60 percent of small-business loans between $100,000 and $1 million. Community banks remain second to none in making the kinds of loans that drive business and economic growth and stability.
The megabanks can say what they want—this certainly is not the first time they’ve gotten creative with their numbers. But the truth remains that community banks are business-lending leaders. Of course, you don’t need creative formulas and spreadsheets to know that—you could just ask most any small-business owner. I wonder if anyone at JPMorgan knows any by name.