Megabanks Boost Business Portfolio—By Changing the Rules

20130205 Megabanks

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.

Small Business is Our Business

Community bankers have a positive story, and we love to tell it. So it’s always a pleasure when others help us get the word out about how community banks contribute to our communities and help local small businesses thrive. And that’s been the story this week as community banks and other small businesses across the nation celebrate National Small Business Week.

Slated to run through this Saturday, National Small Business Week recognizes the important role small businesses serve in our economy. Of course, as prolific lenders and small businesses themselves, community banks are a key component of the celebration. As part of the festivities, the Small Business Administration named First American Bank in Artesia, N.M., the 2012 Community/Rural Lender of the Year. The Small 7(a) Lender of the Year award was a tie between Open Bank of Los Angeles and Premier Commercial Bank of Anaheim, Calif.

Needless to say, it’s been a feel-good week for community banks and other small businesses. Community bankers have been using customizable public relations resources from ICBA to spread the word about National Small Business Week. And the good news doesn’t have to stop on Saturday. ICBA launched its “Go Local” initiative to ensure that the message of banking and shopping locally is out there all year long.

Community banks have a good story to tell, and we enjoy telling it. So let’s make sure consumers, small businesses and everyone else hears us loud and clear.

Persistence Pays Off on Small Business Jobs Act

The long and winding road of passing legislation to stimulate the small-business sector came to a successful end this week as the House voted to send the Small Business Jobs Act (H.R. 5297) to the president. ICBA worked closely with Congress to pass the legislation since the introduction of the $30 billion Small Business Lending Fund. With the help of the nation’s community banks and ICBA’s affiliated state and regional community banking associations, we succeeded in seeing this thing through.

While the $30 billion fund dedicated to expanding small-business lending has been the most high-profile provision in this bill, there are other important measures as well. The law extends Recovery Act provisions that increase government guarantees on Small Business Administration loans and reduce borrower fees, permanently increases loan limits on SBA loans and expands the SBA’s trade and export finance programs. It also provides $12 billion in targeted tax cuts for the nation’s small businesses.

After a series of fits and starts and continued partisan wrangling threatened to derail this common-sense legislation, it was the persistence of ICBA and the nation’s community banks that made the difference. Even as Congress has its eyes on November, with many incumbents fearing for their political lives, lawmakers were able to rally around Main Street thanks in no small part to the reputation and resilience of the nation’s community banks.

Ben Franklin said that energy and persistence conquer all things. Fortunately for the small-business sector and our economic recovery, ICBA and community bankers don’t quit.

What do the opportunities offered by this legislation mean for your community bank?

Wanted: Sanity in the Exam Environment

Albert Einstein defined insanity as doing the same thing over and over again and expecting a different result. Given that definition, to many observers ICBA’s constant calls for more reasonable and balanced field examinations for community banks might appear insane. After numerous and repeated private meetings and public testimony in Washington on this crucial issue over the past three years, community bankers continue to face an overly stringent regulatory environment even as policymakers plead with community banks to boost lending to consumers and businesses.

The current environment hinders the ability of community banks to make loans, which ties up funding that could stimulate the economy. While bank regulators in Washington keep assuring us that they are working to have examiners take a reasonable and consistent approach, community bankers are experiencing something very different in the field and are feeling the consequences of unreasonably harsh exams. With mixed messages such as these, community bankers should be excused for questioning the regulators’ sanity.

All of Washington needs to listen up on this issue—and quickly. As policymakers grapple with a sputtering economic recovery, rigid examiner practices are contributing to a contraction of credit. Einstein also said that the only things that are infinite are the universe and human stupidity, and he wasn’t so sure about the universe. We need a smarter approach to bank exams if we want to keep the fragile economic recovery from reversing course. It doesn’t take an Einstein to figure that out. In a fair exam environment, community banks can give small businesses the loans they need and help America get back to work.