Too Big, Too Slow

Too big to fail. That’s how the major banks have been characterized. And as we enter a new wave of financial stresses, it looks like we’re poised for a new round of forced financial mergers.

That’s a good thing, right? I mean, who wants the hassle of dealing with government deposit insurance. Much better to fold a failing small bank into a “too big to fail” large bank. That way the depositors are all protected.

But not so fast. If we consolidate too far we end up with banks that look and act like utilities. Government regulations, not business opportunities, will determine what kinds loans we can take out, what kinds of deposits we can make, and how we can invest. But is that what this country needs?

We have the most adaptive and flexible economy in the world, in part based on an entrepreneurial multi-tier banking system that is highly customized and customer-focused. If banks join up until they look and act like public utilities, that flexibility is lost. Here’s hoping that the small banks can stay small and independent.

Douglas R. Tengdin, CFA
Chief Investment Officer
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