That cure for “Too big to fail”..

The 2000 plus pages monster produced by Dodd and Frank, the crooks that put together and vehemently defended the framework that left the entire mortgage lending and banking industry open to disaster, then pretended only they could fix it, has resulted in even more emphasis on the “Too big to fail” entities:

The charts below show that both the number of US small banks (which we define as banks with $10 billion or less in assets) and their share of US banking assets and domestic deposits declined substantially between 2000 and 2008. Simultaneously, the five largest US banks’ share of US banking assets and domestic deposits increased markedly. Since the financial crisis, US banking assets and deposits have continued to consolidate in a handful of large banks. As the charts show, the five largest banks by assets now hold 44.0 percent of US banking assets and 40.1 percent of domestic deposits—up from 23.5 percent and 19.5 percent, respectively, in early 2000. Correspondingly, small banks’ share of domestic deposits has fallen from 40.4 percent to 23.0 percent since early 2000, and their share of US banking assets has declined from 35.8 to 19.5 percent.

I can’t say I am surprised. When statist fucks that think government’s job is to pick winners and losers put together a roadmap that encourages the incestuous relation between government and the big entities the statists love, I expect to see more of it. I can go into a long diatribe about how the belief system of the collectivist statists always results in these sort of “Too big to fail” entities, because of the ludicrous belief that a massive bureaucratic central planning system rather than far more responsive and effective market driven system dictates economic policy, and point back to the old USSR, old Communist China, or any other of these collectivist shitholes, and the success of said system’s central planning, but it will all fall on deaf ears for those that pray at Marx’s altar (whether they admit they do or not). The point is simple: letting Dodd and Frank provide the “fix” for the problems their meddling created in the first place was only going to result in more of the problems. So back to the stuff we learn:

Small banks play a critical role in the US banking system and are particularly important in rural and small metropolitan areas. As an AEI report details, small banks play a particularly important role in providing certain products, such as small-business loans, mortgages, and farm loans. They typically fund themselves with customer deposits. Small banks’ community focus enables them to develop and maintain relationships with customers. Through these interactions, they obtain information about borrowers that larger banks generally do not have. As a result, small banks are able to make loans to borrowers who might not qualify under larger institutions’ standardized lending criteria.

There are many factors at work contributing to the huge decline in small banks’ market share. Some of the decline is organic, in that market forces encourage combinations of small banks as a way of spreading operational costs over a larger customer base. The FDIC finds that an average of 182 mergers and 107 consolidations occurred per year from 2001 to 2011. The FDIC also shows that some small banks simply outgrew their small bank status.

Another factor, the financial crisis, is less benign. One study finds that more than five percent of small banks failed in the wake of the crisis.

Bank concentration itself is not bad. But increasing regulatory burdens force consolidation in the US banking industry for the wrong reasons. Regulatory compliance can be a particular challenge for small banks with limited compliance expertise. Regulatory expenses absorb a larger percentage of small banks’ budgets than of their larger counterparts’ budgets. Although correlation is not evidence of causation, as financial regulation has increased since 2000, so has banking concentration. The Dodd-Frank Act, passed in 2010, imposes a new set of regulations that are disproportionately burdensome to small banks. Moreover, by designating the largest financial institutions as “systemically important,” Dodd-Frank creates a market expectation that designated firms are too big to fail and generates funding and other competitive advantages for the largest US banks.

Go fucking figure. Of course, those of us that pointed out that Dodd-Frank was going to do this, and that these assholes should have been kept away from any attempts to correct the problems their “social engineering” vote buying schemes and meddling caused in the first place, get little joy out of being right, considering that the problems are now exacerbated. Don’t take it from me:

Since the second quarter of 2010—immediately before the July passage of Dodd-Frank—to the third quarter of 2013, the United States lost 650, or 9.5 percent, of its small banks. Small banks’ share of US banking assets and domestic deposits has decreased 18.6 percent and 9.8 percent, respectively, and the five largest US banks appear to have absorbed much of this market share. Mounting regulatory costs threaten to accelerate the shift towards big banks and away from small banks that have long been important members of the financial industry and the local communities they serve.

So basically, the statist answer to the economic disaster caused by “social engineering” economics, resulted in even more “Too big to fail” dependencies, and is corroding the very part of a system that would prevent a repeat of the crash we saw back in 2007. I told you so somehow seems not to really do this any justice, considering we have now prepositioned ourselves for an even worse fall when the sure to come repeat of the crisis happens. And please, don’t be naïve enough to think that this time the meddlers will be able to overcome the laws of human nature and economics, so we won’t have a repeat, considering they doubled down on the very things that led to the bad behavior that caused the problems in the first place.

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