Posted 12 months ago on Dec. 12, 2012, 9:09 p.m. EST by arturo
from Shanghai, Shanghai
This content is user submitted and not an official statement
The United States still has the largest and most dense network of commercial banks, 7,000, most of them referred to as community banks; but the hyperinflationary zero-interest-rate policy of Helicopter Ben Bernanke's Federal Reserve is setting them up for a potential wipe-out. The savings and loan banks were largely destroyed in the 1980s after being forced to chase securitization investments and profits, as shadow-banking outfits stole the U.S. mortgage market from them. Now the community banks are facing the same potential fate.
A Dallas-based banking data firm, BankRegData.com, has published a report showing that smaller commercial banks (defined here as those with $20 billion or less in assets) had (in Septempber 2012) 13% more securities on their books than a year earlier, and 9% less in loans. They were largely acquiring mortgage-backed securities. Securities are now about a quarter of the total assets of this size-category of banks.
But for smaller banks, the picture was worse. For banks below $5 billion in assets, securities holdings jumped 17% in a year and loans fell 16%. Among those below $500 million in assets, securities holdings rose 24%, and constituted 30% of total assets as of September.
The cause of this is the Federal Reserve's zero-interest policy, and the fact that big banks have lower capital- acquisition costs than smaller ones now (a reversal of the historic norm), due to the bailout policy and Dodd-Frank regulatory favoritism. Smaller banks can't compete on loans, which are now very unprofitable, and loan demand is low. One consultant is quoted, "Community banks can't compete with the big boys on price. Super-regional banks are throwing out 10- and 15-year loan products in the 3% range, and it's really hard for the community banks to compete with that."
So the smaller the bank, the bigger the appetite for securities speculation that has taken hold. This practice, which holds great danger for the banks and their customers, is what Glass-Steagall was legislated to prevent.
This is the kind of speculation which, when increasingly engaged in by the S&Ls, led to their wipe-out in the late 1980s. It is also the way that the London-run carry trade has destroyed the domestic banking systems of countries like Brazil.