Casualty rates slow, but casualties mount (an update)

US banking failures Freedman's Bank Bankrate.com

The good news is, big banks have been bailed out (cc: US Taxpayer, $700 billion), and small bank failure rates slowed in 2016 and so far in 2017….

the bad news is, U.S. policy drove nearly half such banks out of business from 2009 to 2016, and there appears to be no relief in sight for the institutions that supply most of the capital to small businesses.

Click here for Bankrate.com’s list
of the banking casualties since 2009

.

Freedman’s “still retains assets”

Freedman's Bank ClevelandElizabeth McIntyre from Crain’s Cleveland Business filed a notable piece on the legacy of Freedman’s Bank recently, as the 150th anniversary works its way across the midwest. A brief excerpt:

“The Freedman’s Bank became one of the first multi-state banks in the nation, comprising 37 branches in 17 states and the District of Columbia. Tens of thousands of former slaves deposited more than $57 million, most in small amounts. The bank fell victim to mismanagement, fraud and the “Panic of 1873.” It closed. Most lost their savings. More than $3 million in deposits, uninsured, were gone. And historians say it may have been the genesis of a deep distrust of banks by African-Americans.

“The Freedman’s Bank still retains valuable assets more than 150 years later: the records of depositors. At the time, former slaves provided details about their addresses and a record of spouses, children, siblings and parents. The records from 29 branches still exist at the National Archives and they’re a treasure trove for 10 million African-Americans today whose ancestors were depositors. The database also is accessible online for free at FamilySearch.org.”

Read the full article at Crain’s Cleveland Business

Dodd-Frank turns 6

This summer (July 21) will mark the sixth anniversary of Dodd-Frank…

with what critics say is “no end in sight” to the squeeze on small businesses served by the small community banks the bill — sponsors originally said — was designed to help.

(At 22,000 pages, and having spawned 27,000 pages of new regulations, the act certainly had a major impact.)

Research out of the Minneapolis Federal Reserve suggests that adding just two members to the compliance department to process these regulations makes a third of small banks unprofitable.

At the end of 2014, there were 20 percent fewer community banks today than there were before this legislation took effect, and they continue to disappear at a rate of one per day.

In a typical year in recent American history, 100 new banks are created, but since Dodd-Frank passed, only three have been created in total.

Meanwhile, the big banks are now 80 percent larger than before the financial crisis.

Small banks, it’s true, have only 10 percent of the banking industry’s assets, but make one-quarter of the country’s commercial loans, two-thirds of its small business loans, and three-quarters of its agricultural loans.

Freedman’s and mistrust

St. Louis City treasurer Tishaura O. Jones on the legacy of mistrust not just of banks, but of government, sewn by the Freedman’s Bank….

“The mere existence of the Freedman’s Bank answers the age-old question of why generation after generation of African Americans do not trust government institutions.

“In a 2014 survey of low income communities of color and their banking habits, it was discovered that over 50 percent of people of color learn lessons about finances, good or bad, from family. If your parents kept their money in their mattress or used money orders to pay all of their bills, then you are more likely to as well.

“The history of the Freedman’s Bank gives African Americans an all-too-poignant lesson about trusting banks and the federal government….”

Continued at The St. Louis American…

Fed celebrates Freedman’s at 150

Don’t miss the rich history of Freedman’s Bank, now on display at the Federal Reserve….

including original artwork and passbooks, from some of the bank’s original $57 million in deposits.

Although the bank failed through poor government regulatory policy and mismanagement leading into the Panic of 1873, its mission was a noble one, and still timely given economic conditions today.

The exhibit, marking the 150th anniversary of Freedmans, will also travel to Atlanta and Cleveland later this year.

Too big to be the cause….
3 1/2 cheers for Peter Wallison

For nearly seven years, analysts have run circles around the bailout of large banks, automakers, and other firms deemed too big to fail during the 2008 financial crisis.

And while no one denies the economic importance of these institutions, it may be that when it comes to understanding the U.S. economic malaise in the years since, these actors are, in a sense, “too big to be the cause” as well.

That’s the conclusion we’re coming to based on the work of economist Peter Wallison in his persuasive book, Hidden in Plain Sight. (Reviewed here by The Wall Street Journal.)

A more likely culprit is the fate of small- and medium- sized banks over the same time period, under the disproportionately large burden imposed on them by the 2010 Dodd-Frank Act.

It’s a classic truism that smaller institutions have higher average costs dealing with regulation. They must meet the fixed cost of dealing with all those rules and bureaucrats just like any large bank. But they may not spread the overall cost efficiently over a balance sheet in the billions or trillions…

Furthermore, small businesses still (at least up until this recovery) account for an estimated 80-90 percent of new jobs.

And, because they come nowhere close to meeting the capital requirements for listing on a stock exchange or even for most private offerings, small businesses are almost completely reliant on banks for their financing needs.

Hence the squeeze placed on smaller financial institutions is especially painful to growth and opportunity, a double whammy.

It’s an important topic, one we keep coming back to because it’s so near and dear to the Freedman’s Mission.

Dodd-Frank’s continuing Legacy

It is now five years since President Obama signed the Dodd-Frank Act, continuing the work begun by the bank bailouts of 2008-2009 –

which critics argue includes putting the squeeze on small banks and the small- and medium-sized firms that used to rely on them.

“Dodd-Frank’s backers in Congress and other members of the left touted the regulation as a means of helping Main Street over Wall Street,” writes Carrie Sheffield in Forbes
“Yet the number of community banks fell by 40 percent since 1994, and their share of U.S. banking assets fell by more than half – from 41 percent to 18 percent.

“In contrast, the biggest banks saw their share of assets rise from 18 percent to 46 percent. And while the number of community banks already declined before the crisis, since the second quarter of 2010 – Dodd-Frank’s passage – community banks have lost market share at a rate double what they did between Q2 2006 and Q2 2010: 12 percent vs. 6 percent.”

Dodd-Frank’s regulatory burdens, another critic argues, “are driving consolidation, and could result in lending markets less able to serve core economic demands.” Particularly troubling, according to lead author Marshall Lux, a senior fellow at HKS’s Mossavar-Rahmani Center for Business and Government and senior advisor at The Boston Consulting Group, “is community banks’ declining market share in several key lending markets, their decline in small business lending volume, and the disproportionate losses being realized by particularly small community banks.”

Vast Freedman’s collection released

Acting in cooperation with the National Archives and the Smithsonian Institution, Family Search International, is releasing an estimated 1.5 million images that contain the names of more than 4 million African-American slaves eventually freed at the end of the Civil War.

The materials were originally collected by the Freedman’s Bureau, organized to help former slaves in 15 states and the District of Columbia after the end of the war.

“African Americans who tried to research their family history before 1870 hit a brick wall because before 1870 their ancestors who were slaves and showed up as tics or hash marks on paper,” said Paul Nauta, spokesman for FamilySearch. “They didn’t have a name. The slave master would just have tick marks.”

The release italicizes the impressive support given to the cause of family and community development by the Church of Jesus Christ of Latter Day Saints, of which FamilySearch is a subsidiary.

More details from a recent report in The Washington Post.