Big and local banks diverge on reform

A bank sign

TEXT OF STORY

Kai Ryssdal: Here's an entirely apropos question for you, given the news of the day. What is a bank? I'm not talking about the difference between an investment bank and a commercial bank here. I'm talking about the difference between, I don't know, say, First Regional Bank of Boise, Idaho, and Bank of America.

They look reasonably similar on the outside. They've both got brick and mortar branches; they make loans to small businesses; they offer checking accounts. But in all the back and forth over the new financial regulations, we are seeing a real difference between them. The big banks are fighting like mad against reform. But a lot of the little guys think change is actually a good idea.

Marketplace's Alisa Roth reports.


ALISA ROTH: Big banks have been making lots of money lately by doing things community banks don't do.

Karen Thomas works for the Independent Community Bankers of America, a trade association. She says local and regional banks are interested in Main Street.

KAREN THOMAS: They're not focused on exotic derivative products and, you know, credit default swaps, and they're not internationally active.

Those profitable activities are being threatened by reforms, which is why the big Wall Street banks are fighting the proposed legislation.

MATT MCCORMICK: Really what it comes down to is that the bigger guys are pushing away, are trying to stop some areas of reform occurring that are extremely lucrative for them.

Matt McCormick is a banking analyst at Bahl and Gaynor.

MCCORMICK: And any more regulations, bureaucracy, or change in those plans could potentially be harmful to future earnings and profitability and ultimately their share price.

Community banks make their money elsewhere -- with deposits and small loans.

Karen Thomas, from the Community Bankers Association, says unlike the big guys, her constituents are fighting for reform.

THOMAS: We'd like to see an end to too big to fail. We would like to see a pre-funded systemic risk fund that can be used to dissolve and liquidate a failing large institution instead of having the taxpayers bail the institution out.

Analysts say major reforms would make it easier for small banks to compete, which would be good for the economy as a whole. There'd be more lending at a local level, and the risk would be more spread out.

In New York, I'm Alisa Roth for Marketplace.

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