Banking Law

As hard as it may be to believe, Ariana Huffington has a new love interest: community bankers. Last week, she and Rob Johnson urged readers of Huffington Post to move their money from the evil clutches of too-big-to-fail bankers at Bank of America and JPMorgan Chase into the warm, soft embrace of all those "George Baileys" that Ms. Huffington and Mr. Johnson imagine community bank CEOs to be. Ms. Huffington and her merry band of progressives believe that they can make common cause with populists on the starboard side of the political ship-of-state and tap into the public's distaste for tone-deaf big bank executives who took TARP and paid themselves boatloads of year-end bonuses while sniffing that all the out-of-work prols can just eat cake. She and her cohorts want the common folks to help out the "struggling" banks that Ms. Huffington refers to as "America's Main Street community banks."

She may be on to something. There's nothing like the feeling your sticking your thumb in the eye of some fat cat to start the new year off on the proper note of peace on earth and good will to men (and women, too, of course). Heaven knows, community banks can use all the help they can get at this point.

My erstwhile progressive friend Alain Sherter at BNet, who suffers my conservative tomfoolery with good humor, beat Ms. Huffington by more than a week. Alain wrote an article two weeks ago calling on the Obama administration to do more to help community banks. He doesn't appeal to populist anger, however. He instead basis his appeal on facts.

Here?s the thing ? small banks are also systemically important. Unless such institutions thrive, small businesses can?t grow. Community banks hold roughly 11 percent of total industry assets, but make 38 percent of all small business and farm loans. Banks with less than $1 billion in assets make more than half their loans to small businesses, according to the FDIC.

Without financing, these enterprises can?t create jobs. Equally important is the kind of jobs they create. These companies are where most of us start our working lives. Without such investment, to state the glaringly obvious, many communities already struggling with the effects of the housing and commercial real estate busts face deeper problems. The system ? namely, the economy ? doesn?t work.

If this era of goodwill keeps up, bankers (of the community variety, at least) may finally be able to show up at cocktail parties and admit their actual profession. I know my clients have been growing tired of claiming that they could tell people what they do, but then they'd have to kill them (in self defense). They may also be able to remove the paper bags from their heads when they head out the back door of the bank to slink home at the end of the day.

We'll see how successful this "move the money" campaign turns out to be. Personally, I expect the whole movement to blow over rather quickly, and people pushing this "cause" to move on to the next new thing. Moreover, unless the FDIC and the other federal bank regulators also start "feeling the love," all the good will generated by Ms. Huffington, Mr. Sherter, et al. will be for naught. Requiring community banks to boost capital, increase reserves, write down the value of assets, and otherwise restricting their deposit gathering and lending activities, which is what is happening now, will severely crimp their ability to put all those wonderful new deposit liabilities to work.