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Richard J. Parsons, who, prior to becoming an author on all things banking, was a career executive with Bank of America, is expressing his pessimism (sub. required) about the possibility of regulatory reform making it through Congress this year. The reason Parsons's pessimism: "ideology."
Two clashing worldviews dominate the conversation about bank regulation today. The first espouses the self-correcting power of the invisible hand of free markets. This ideology prevailed in the era of Ronald Reagan and Margaret Thatcher. But in the aftermath of the financial crisis, it seems to be losing steam.
The other ideology, backed by President Obama and Sen. Elizabeth Warren, fashions banking as a public utility to be controlled by elite central planners who are unsullied by self-interest.
Politicians compromise. Ideologists don't — even when they are confronted with "inconvenient facts.''
Today, there are 1,524 fewer banks with assets under $1 billion than there were on June 30, 2010 — just a few days before Dodd-Frank was signed into law.
Dodd-Frank = fewer banks is a popular mantra. Personally, I think the trickle-down burden of Franken-Dodd and the swing of the regulatory pendulum from lax-to-overbearing in the wake of the 2008 financial system meltdown have both played in a role in the incredibly shrinking community banking industry. However, as one of the anonymous commenters to linked article points out, economies of scale have also played a role. So have artificially low interest rates for the last seven years and the difficulty of making money on the interest rate spread. As we've also discussed, the paucity of de novo banks in the current economic cycle has played a role.
That said, Parsons point about the desire of Elizabeth Warren and her tribe of like-minded leftists (Parsons accuses FDIC Voice Chairman Thoma Hoenig of being in her camp, which may come as news to Hoenig) to make the banking business a "public utility" falls on open ears. We agree that many on the left would love the US to adopt the Canadian model of only a handful of banks, all micromanaged by the federal regulators-with Congressional input, of course-to serve the overridng social engineering goals of those who always exit stage left. The fewer the number of banks, the better able their regulators will be to "manage" them.
