ICBA - Publications - CEO Alerts - All Banks are Not Created Equal



The Declaration of Independence states “All men are created equal.” It is a cherished and fundamental right. Too bad that same right does not apply to all banks. Someone has to say it! It is time we admit the obvious. All banks are not created equal. There is no equal justice under law when it comes to this nation’s banking system.

Historically, our regulatory system was based on the fundamental principle that all commercial banks would be treated equally under regulation and law. However, for nearly a generation now our nation’s commercial financial institutions have evolved into two fundamentally different business models within the same financial services sector — Wall Street banks and Main Street banks.

Until the early 1980s all commercial banks were largely treated equally. Then, in 1985, Continental Illinois created the first crack in the ground between “systemically important banks” and the rest of us. Today, that crack has become a yawning chasm wider than the Grand Canyon. What was once our impartial regulatory system is anything but — far from it. Today, if you are big enough, your customers and your investors enjoy the full protection and assistance of the U.S. government. The second Citi bailout bitterly makes the point.

The community bank I owned in Ashland, Mo. had about as much in common with Citi or JPMorganChase as an elephant has with a house cat. Both are living creatures, but the similarity ends there. Citi’s management and shareholders have actually been rewarded with taxpayer funded Tier 1 capital and asset protection for incompetent management and reckless decisions that have resulted in financial disaster for millions of Americans. While megabanks like Citi continue to operate with no apparent regulatory enforcement actions (such as a Cease and Desist order), bank regulatory agencies are handing out public enforcement orders against community banks like parking tickets.

And while there are no public sanctions levied against the Wall Street boards of directors who were the guardians of the investors interests and had a fiduciary duty to safeguard the customers money, community bank boards and managements are facing the wrath of regulators eager to atone for their lapses on Wall Street.

In today’s atmosphere, if a community bank so much as fails to dot the proper “i” or cross the right “t,” its management and board are subject to public enforcement orders, reputational embarrassment, loss of net worth and sometimes loss of the bank itself. Yet the Wall Street crowd continues to “dance” (in the words of the now discredited, but never sanctioned Chuck Prince). In the palace that is Wall Street, the “elite” bankers fiddle while Main Street burns.

Where are the sanctions on Wall Street? Where are the regulatory enforcement orders? Where are the orders barring certain people from ever operating in the financial services field again? Such orders are being handed out like Christmas candy in the community banking sector. Why not on Wall Street? Could it be because we have crony capitalism in this nation? Those making financial policy on the Potomac are the same people who fed at the trough of Wall Street for most of their careers. Their financial universe stops at Broad and Wall. So what would we expect?

No other episode in American financial history has revealed the shocking disparity between the treatment of Wall Street banks and Main Street banks by our government and its agencies than the current financial crisis. Regulatory justice has a very different meaning in a Main Street community bank than it does in a Wall Street systemically important bank.

It is high time that community bankers make a stand! While the common shareholders and management of Citi are bailed out on your dime, what is left of your investment in your bank is being sucked away by overzealous regulators bent on saving face. While you are being whipsawed around by schizophrenic government programs whose rules change almost weekly, Wall Street executives and their boards continue to pay themselves multi-million dollar bonuses and enjoy the privileges of too-big-to-fail.

As a community banking industry we cannot let this travesty of justice go unchecked. We cannot let this continue. Grab your members of Congress and get in their face; let them know in clear terms how you feel about this. Tell them that you did not cause this mess, so why are you being punished and forced to pay for it.

It is time our policy makers recognize that Wall Street is crippling Main Street America and its citizens, and that the too-big-to-fail, too-big-to-manage and too-big-to-regulate institutions must be broken up for the good of our nation and its citizens. If our public policies continue to allow these monster institutions to grow ever larger, even more taxpayer money will be required next time (and there will be a “next time”). Eventually these monsters will devour the very heart and soul of our economy and its citizens.

It is time to take aggressive action and let our Congress hear from Main Street. Please join with ICBA and help us help you. Your community bank’s future and our children’s future depend on us.

Warmest regards and happy holidays to all.