Comments on: Why BofA needs to shrink http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: najdorf http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/comment-page-1/#comment-10909 Thu, 07 Jan 2010 02:11:51 +0000 http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/#comment-10909 I don’t know why politicians and CEOs waste so much time talking about too-big-to-fail when we have plenty to deal with in terms of consumer protection (from any size institution) and safety and soundness (at any size institution). Actually, I do know why – it’s much easier to get the average voter/reader to pay attention with a four word phrase containing no word longer than four letters than complex regulatory issues. You can have a lousy banking system with big banks. You can have a lousy banking system with small banks. The miracle of America is that we have managed to achieve both.

Dollared: Do you know how many banks there are in the U.S.? Not counting non-FDIC-insured institutions that do banking, over eight thousand.

http://www2.fdic.gov/idasp/index.asp.

So please explain in more detail how consolidation has destroyed local lenders. I’d be very interested to hear all about how America requires more than 8,000 different banks, or how consumers who have chosen to bank with a large national bank should be legally mandated to switch their accounts to a smaller local bank in order to support your small business lending goals.

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By: Dollared http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/comment-page-1/#comment-10895 Wed, 06 Jan 2010 21:54:48 +0000 http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/#comment-10895 This is probably the Wal-mart effect extended to banking. Small business loans (note that the Google chart doesn’t really address business lending) are the creatures of local lenders, with local markets and local economies as their primary concern.

The loss of these local institutions via bank consolidation has had all sorts of deleterious effects – on community leadership, in local entepreneurship, local charitable efforts, etc. And US law and regulation have facilitated this terrible trend.

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By: MitchW http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/comment-page-1/#comment-10819 Wed, 06 Jan 2010 00:32:50 +0000 http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/#comment-10819 I think that you last point highlights another relevant issue: small business lending just can’t make up enough volume to matter to a bank this huge. It’s a problem in other sectors of financial services as well, notably VC and PE, where if a deal is so small as to have a negligible impact on the bottom line–even if it has a positive NPV–it’s not worth the time and effort involved with pushing the deal across the finish line. Smaller banks would be more likely to lend to small businesses because the loan would have a greater impact on the balance sheet.

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By: OnTheTimes http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/comment-page-1/#comment-10817 Tue, 05 Jan 2010 23:35:18 +0000 http://blogs.reuters.com/felix-salmon/2010/01/05/why-bofa-needs-to-shrink/#comment-10817 I don’t care if we have banks that are too big to fail, as long as they are too smart and too over-capitalized to fail. Since we can’t depend on banks to act in their own self-interest (because the interests of the management and the firms do not always align, like when compensation has no correlation with performance), we need to put restrictions on their operations, like increasing capital ratios with total assets.

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