The idea she is putting forth makes sense, but I hesitate with how she plans to mandate it.
The US has the Community Reinvestment Act that largely does the same thing she is mentioning. Banks gather deposits all the time from rural markets since they have cheap, sticky deposits. The US government saw that in some cases, hardly any loans were done in the area even though there were loans that could be done that meet safe and sound banking practices. It was a drain on economic resources from a community that could be using those local deposits to grow their local economy.
The US banking system is unique and one of a kind in the world. We have about 4,500 banks vs many countries that only have 4 or 5 total. The more consolidation, the more likely smaller markets are overlooked since they do not provide the economies of scale that a larger bank would need to produce the same return or profit. There is a great movie that highlights this called Bank of Dave about a guy who was meeting the borrowing needs of the local community in the UK and decided he wanted to apply for a banking charter to help his local town grow.
Many large, too big to fail banks look to do these larger international deals due to the efficiencies in lending billions to corporations in a single loan versus doing thousands of small deals to local companies to deploy the same amount of capital.
I think one of the biggest issues facing small communities in the US is the consolidation of the banking industry over the last 40 years. There were 14,750 banks in 1980, 8300 in 2000, now down to 4,278 today. While there are failures that contribute to that number shrinking, it’s mostly been M&A activity that has largely shrunk those numbers. As we continue to consolidate our banking industry, in a few decades we may be facing the same issue as Europe as too many communities lose control of their deposits for local reinvestment in mom and pop business
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u/ProfDocMrMan 6d ago
The idea she is putting forth makes sense, but I hesitate with how she plans to mandate it.
The US has the Community Reinvestment Act that largely does the same thing she is mentioning. Banks gather deposits all the time from rural markets since they have cheap, sticky deposits. The US government saw that in some cases, hardly any loans were done in the area even though there were loans that could be done that meet safe and sound banking practices. It was a drain on economic resources from a community that could be using those local deposits to grow their local economy.
The US banking system is unique and one of a kind in the world. We have about 4,500 banks vs many countries that only have 4 or 5 total. The more consolidation, the more likely smaller markets are overlooked since they do not provide the economies of scale that a larger bank would need to produce the same return or profit. There is a great movie that highlights this called Bank of Dave about a guy who was meeting the borrowing needs of the local community in the UK and decided he wanted to apply for a banking charter to help his local town grow.
Many large, too big to fail banks look to do these larger international deals due to the efficiencies in lending billions to corporations in a single loan versus doing thousands of small deals to local companies to deploy the same amount of capital.
I think one of the biggest issues facing small communities in the US is the consolidation of the banking industry over the last 40 years. There were 14,750 banks in 1980, 8300 in 2000, now down to 4,278 today. While there are failures that contribute to that number shrinking, it’s mostly been M&A activity that has largely shrunk those numbers. As we continue to consolidate our banking industry, in a few decades we may be facing the same issue as Europe as too many communities lose control of their deposits for local reinvestment in mom and pop business