A man who spent his working life successfully building a de novo community bank into a powerhouse that made himself and his fellow shareholders wealthy has started over using the same scheme. Unfortunately, this time around, he's not doing it in the United States.
You might call Vernon Hill a reverse Paul Revere. Most Americans like to believe that the U.S. is still a land of opportunity, the place where anyone can start a business and make a profit. But Mr. Hill issues a warning that rings loud and clear: The British—and others—are more inviting than we are.
“The regulatory environment has become so onerous in America that it is now easier to start a business in England than in the U.S.,” Mr. Hill says—and he would know.
That's right: the U.K. a nation that, 70 years ago, embraced the welfare state with open arms, is a better place to start and build a community bank than the land of the overregulated and the home of the Franken-Dodd Monster.
“When I went to Britain I thought the regulatory environment would be much worse,” he says. “It’s infinitely better there.”
The problem in the U.S. starts with towering federal regulations, such as the voluminous reporting and compliance rules in Dodd-Frank, the financial reform act that recently celebrated its fifth birthday. “Regulators are making it impossible for the medium and small banks to comply with the rules,” he says. “The burdens get so intense that it is destroying the small and medium-size banks in America.”
The result is that Dodd-Frank, a law intended to take on the systemic risk of “too-big-to-fail” banks, is multiplying the problem. “The big banks that are too big to fail are bigger now than ever, but the regulations have trickled down to the smaller banks that didn’t cause the financial crisis” Mr. Hill says. As a result, community banks are disappearing. “When I started my first bank in the 1970s there were 24,000 banks in America,” he says. “There are now 7,000 banks. It may soon be 500 or even fewer.”
According to Hill, Dodd-Frank is not the only spewer of regulatory offal. The BSA and the CRA get equal billing as soul crushers.
“The feds have taken anti-money-laundering rules to the extreme,” Mr. Hill says. “We have to monitor every deposit account every 24 hours. Somebody’s monitoring your account every day.” That’s invasive and expensive.
He laments that the Community Reinvestment Act, a catalyst of the 2008 subprime mortgage crisis, still hasn’t been repealed. “We are literally required to make loans that we know are going to fail,” he says.
Finally, the little guys are also being beaten down by the Mini Me's of red tape.
Then there’s the tangle of local regulations that every American small business must cut through. “You don’t need a building permit in Britain. Here [the U.S.] you have to get permits and you have to get inspections,” he says. All that can eat up months and months. “I can build 100 branch banks in Britain before I can get one built in the U.S., thanks to regulators.”
The linked article gives details on how Hill personally made hundreds of millions for himself (and billions for all of the shareholders) in the U.S. and how he's on the path to do the same thing in the U.K. It also gives his parting advice for US regulators.
What to do with banks that are too big to fail? Mr. Hill doesn’t hesitate. “You have to make them smaller,” he says. “You break them up.” He says that at one point there was a rule that barred any one bank from holding more than 10% of the country’s deposits, but that some institutions, such as Bank of America, have now edged above that figure. He views that as dangerous.
And how much should we be worried about overregulation—or competition from abroad? “Here’s my story in a nutshell and I hope Washington is paying close attention,” Mr. Hill says. “A very successful American business model has been transferred to Britain, where it’s even more successful because it doesn’t have to deal with the same burdens of government.”
He continues: “The politicians keep talking about fairness and helping the little guy. But it’s the little startup businesses that get hurt the most from the heavy hand of excessive government regulation. How is that fair?"
It's not fair. That's why Hill's "outta here" and "over there." He may be starting a trend.