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Independent’s Day: Local Banks and the Dodo Bird

by Jason Howell — January 30, 2013 at 2:45 pm 940 33 Comments

Independent’s Day is a weekly opinion column by published on Wednesdays. The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.

Independent Congressional candidate Jason Howell(Updated at 3:50 p.m.) The “Dodo bird” has become an international symbol for all that was but never will be again. It left us sometime in the 17th century and if we are not careful, small banks may leave us early in the 21st century.

Today, the Washington Business Journal reported that Arlington-based Virginia Commerce Bank (VCB) is beingn sold to Charleston, W.Va.-based United Bankshares. At about $3 billion in assets, VCB is tiny. Compared to the largest banks – like JP Morgan Chase & Co. with over $2 trillion in assets — it is infinitesimal. So why does it matter? It matters because the small banks have done the majority of the business lending in our communities for a very long time. As banks consolidate, some of that power of personal, relationship lending disappears.

Just recently First Virginia Community Bank acquired Arlington’s First Commonwealth Bank of Virginia. Small local banks like John Marshall Bank, headquartered in Falls Church, and Burke & Herbert, based in Alexandria, need to be preserved somehow. We need to preserve them because what’s bad for small banks is bad for small business, and what’s bad for small business is bad for our local economy.

Last year I had an opportunity to talk with one of the GM’s of our many pizzerias in the Clarendon/Courthouse corridor. He shared with me how helpful it’s been to have a relationship with John Marshall Bank, and we know he’s fed thousands of our neighbors with that help (including me)!

Private merchant banks helped build the family farm and gave birth to the industrial revolution of the 19th century. Local bank relationships financed the business-startups-turned-Fortune-500s of the 20th century. We celebrate the “relationship bank” every year with the holiday classic, “It’s a Wonderful Life.” Do we root for Mr. Potter or George Bailey and the neighbors of Bedford Falls? Few of us live in small towns but many of us still have relationships with small banks. They finance our education, new businesses, cars and homes. Credit unions are great examples of relationship banks.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act was passed to stop big banks from doing bad things — like failing. Unfortunately, what it’s been better at is stopping small banks from doing good things — like lending.

On September 13th of 2012, the Government Accountability Office completed an 88 page report on the impact of Dodd-Frank implementation on community banks and credit unions. Their 2013 report came out just last week and identified that 52% of the rules for nearly 236 of those laws were still unclear with some governing rules not even proposed. Smaller community banks and credit unions are unequally impacted by the unclear cloud of the new rules because they don’t have the infrastructure — i.e. lots of lawyers and accountants — to muddle through them all.

We can support small banks by banking with small banks and also by dipping into the nuance of news around the Dodd-Frank Act. It is about 2,000 pages long so none of us are likely to read it but we can help fix it. The GAO gives us a great primer on what needs to be clarified and our federal representatives could be encouraged to consider revisions if they thought we were paying attention. We are. We have to because we can’t get let local banks go the way of the Dodo bird.

And we like our pizza here in Arlington.

Jason Howell, a former accountant and motivational speakerran as an independent candidate for U.S. Congress in 2012.

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  • Let’s Be Free

    My, what a serious, thoughtful and insightful post. Which explains why you’ll never get elected to anything buster.

  • G Clifford Prout

    When push comes to shove, the for-profit banks are only beholden to their shareholders. Providing good service to a community is only a means of operating profitable bank which is translated to dividends and/or increased share prices. They did what was in the best interest of their shareholders. My guess is that the shareholders will approve this deal by a landslide. Leaving the whole issue of the non-tax-paying credit unions aside for the moment the larger issues faced by Dodd-Frank are 1) the lack of any will by the regulators to approve de novo charters to community banks and 2) the fact that Dodd-Frank most likely did nothing to prevent “too big to fail” and most likely codified what a TBTF bank actually is.

    Action items would be 1) support any legislation that would force the TBTF banks to divest themselves of the pieces of business that make them systematically important and thus TBTF and 2) move your money to another locally owned bank. It’s not that hard and you can find good ones out there.

    http://www.bauerfinancial.com/btc_ratings.asp Hope that works.

  • Alex

    Cheers! Great thoughts and valid concerns. Let’s hope the message gets out there that we need to keep our local lenders local!

    • speonjosh

      All snarkiness aside, I actually failed to comprehend this column. Aside from the headline message – small, local banks are good – there was really nothing in it. Why are small, local banks good? What can they do that big, national banks can’t? What, exactly, is the threat to me or the rest of the community if small, local banks disappear?
      After reading the column, my answers remain I don’t know, I don’t know, and I don’t know.
      (Well, OK, I could make a start at an argument, but not based on anything I read here.)

      • David M

        Gosh, I hope you’re not a product of APS.

      • smallbusinessowner

        Small banks can be more flexible than the bemoths that now rule most of the banking. Big national banks are rule bound to the nth degree. Burke and Herbert can really establish real relationships with small businesses. The degree of management turnover is much lower at B &H than the big national banks. Also, the small community banks have a VESTED INTEREST in the communities they are a part of and serve. The small community banks understand the nuances of their community. I could go on and on.

        Bottom line is shop and bank locally keeps things local.

        Local services are dependent on money being spent and kept local.

      • Clarendon

        In my opinion, local banks just deal with the local conditions much better than non-local banks. When an entrepreneur, with a decent record and balance sheet goes in to a local bank with a novel or unusual idea, in theory the local banker knows the person and the local market and can make a good qualitative/quatitative judgement on the venture. Non-local banks generally use more formulaic approaches and if your situation doesn’t fit into some category that they are used to they don’t want to lend.

  • speonjosh

    Since when do we put the names of extinct animals in quotation marks?
    “I was at the museum the other day and saw a cool exhibit about ‘dinosaurs.’ Then, I walked over and was appalled when they had a ‘mastodon’ being hunted by ‘Neanderthals.’ What’s next, ‘Eohippus’ races?”

    • “drax”

      Good point, “speonjosh.”

    • John Fontain

      ^^^^What you post when you have nothing substantive to say.^^^

      • speonjosh

        Lighten up, Francis.

        • “drax”

          You mean lighten up, “Francis.”

        • HomeGrown

          Great stripes reference +12

  • NIMBY The Chicken

    That chain is in big trouble if the Ballston United Bank is representative of the entire chain… that place is an atrocity. Last time I went in there the manager was on speakerphone reading off someones name, address, and account number with her door open.

    • QuartHouse

      Yeah, United Bank is awful. I didn’t know it was based in Charleston, but that explains a lot. It should be called “BankWild”

  • South Side Chris

    Abort, Retry, Fail?

  • Zuzu

    How long before they sell off that VCB lot in Clarendon and turn a tidy profit?

    • two weeks ago

      It should have been done a long time ago.

      • QuartHouse

        They already sold their development rights to enable higher density at Market Common. If the bank leaves, nothing bigger can be built there.

        • wanna bet?

          wanna bet?

  • TMP

    We stopped doing business with large banks years ago. When our mortgage got sold to Bank of America, it was such a nightmare to work with them. Check out the “Move Your Money Project” and do business with small and regional banks instead of those “too big to fail”: http://www.moveyourmoneyproject.org/

    • smallbusinessowner

      Too big to fail; however, so big they fail the local businesses and others in the community.

  • Clark Clifford

    I don’t see anything wrong with large foreign banks acquiring local banks.

    • smallbusinessowner

      You have to be kidding!!!

  • internet tourettes

    Although you essay is well intentioned you have missed the key difference between small (for profit) banks and credit unions. Credit unions are restricted to lending more than 12.25% of their assets to non-consumer customers due to lobbying efforts by commercial banks. This cap has restricted a lot of local capital from being reinvested in the local business community. Credit unions, as you know, are non-profit entities that return any profits to their depositors as opposed to public shareholders. During the last banking crises, credit unions continued to provide credit to local business while commercial banks took federal funds and purchased either government or commercial securities for short-term profits while denying credit to local business and further prolonging the economic crisis. Although most small commercial banks were born from communities (African American, immigrant, or certain trade groups) that were either under served or ignored by large commercial banks, credit unions are still the only institutions that continue to reinvest their profits in the community.

    As to the Dodd Frank bill limiting or restricting lending, yes it will reduce predatory loans which is not in the customer’s best interest. Dodd Frank merely formalizes good lending practices that were in place until Gramm Leach Bliley act of 1999 which repealed the Glass Steagall put in place to prevent banking crises’ like those in 1929 (and 2008). Perhaps the better question is if a bank cannot make prudent loans that do not cause either undue risk to the bank (and its federal insurer) or its customer then should it be lending money at all.

    • Dear Credit Union Publicist

      Your entire post is quite comical.

      On TARP – http://online.wsj.com/article/SB10001424052748703859204575525820745204374.html

      Credit Unions got TARP money and just as restrictive with their money as all banks back in 2008-09

      Credit unions were original set-up to act as a co-operative and restricted membership to some defined relationship so they could maintain their non-profit status. But, that isn’t the fact any more due to lobbying by Credit Unions to Congress, so why do they get protection from income taxes since they are basically the same as a bank.

  • PHD

    Tourettes, would you clarify the first few sentences of your post? It’s important, but something is missing so I’m not sure what you’re saying. “Credit unions are restricted to lending more than 12.25% of their assets to non-consumer customers” – what does that mean?
    no snark, I’m interested but confused. Thanks

  • Paula

    While I strongly favor saving small banks, a recent experience with Burke & Herbert on Clarendon Blvd makes me think they will be more likely to survive if they are community friendly. Several months ago I asked for a roll of quarters for a twenty dollar bill, and they refused because they “like to save that for there customers”. That meant I did not have change for the parking meter to stay and shop in the neighborhood. And in all truthfullness I had been thinking about opening an account there, but I was so put off by the attitude, that would not do so.

    • clarendon

      It doesn’t really suprise me when any business doesn’t want to become the change maker for the parking meters. If you had an account there maybe I would expect them maybe to be more accomodating. You need that bank in the SNL commercial – the bank that all they do is make change.

      http://snltranscripts.jt.org/88/88achangebank1.phtml

      “We have been in this business a long time. With our experience, we’re gonna have ideas for change combinations that probably haven’t occurred to you. If you have a fifty-dollar bill, we can give you fifty singles. We can give you forty-nine singles and ten dimes. We can give you twenty-five twos. Come talk to us. We are not going to give you change that you don’t want. If you come to us with a hundred-dollar bill, we’re not going to give you two-thousand nickels.. – unless that meets your particular change needs. We will give you.. the change.. equal to.. the amount of money.. that you want change for!”

  • internet tourettes

    RE: Dear Credit Union Publicist

    You must work at a comercial bank that issues credit cards with 19% interest rates….

    The U.S. Treasury in recent weeks provided 48 credit unions with $69.91 million
    The CBO says that the total disbursment of tarp funds as of oct 2012 is $431 billion.

    as to loans:

    “I would say, generally, given what we’ve just gone through (credit unions) are in very good shape,” Schenk says. “Asset quality isn’t stellar, it’s deteriorated a lot but compared to what the banking sector is dealing with — we’re one-third of what they are in delinquencies and half in net charge-offs.”
    Schenk says credit union membership grew by nearly 2 percent the past year in part because people are finding it difficult to get loans elsewhere. CUNA statistics show credit union loan balances growing by approximately 4.5 percent in the 12 months ending June 2009 versus loan balances at banks shrinking by that same percentage during the same time period.

    http://www.bankrate.com/finance/savings/credit-unions-faring-well-in-crisis.aspx#ixzz2JV04gGRJ

    As to Credit unions not paying taxes, they do not retain earnings and have no tax liablity. Their 501.c status requires them to return all profits to their depositors who are liabal for any tax obligations.

    RE: PhD:

    Please see the link below for good overview of the history of the comercial lending cap for Credit unions:

    http://www.icba.org/files/ICBASites/PDFs/Legislative%20History%20of%20Credit%20Union%20Member%20Business%20Lending%20Cap.pdf

  • nom de guerre

    Is it just me, or does Jason Howell’s picture look like it was taken by the Brofile Cam™?

  • Let’s Be Free

    How about being bank customer friendly and reserve the quarters for those who really need them, while using your credit card to pay for parking on that street, using the multi space pay station that the County installed exactly for people like you who couldn’t be bothered to come supplied with change?

  • n00bbanker

    I really want to like this guy, but some of the stuff he writes is just misguided. Having typos in your column and website doesn’t help.

    Anyway, this whole idea of “preserving” small banks is dependent on the idea that acquiring banks, even those like United, are sharks. Often times people start up small banks for the sole purpose of selling out and realizing liquidity.

    I would also like to understand his definition of “small business.” This term is thrown around politically and is never described. I work in business lending (for a large bank) and small can mean anywhere from $100k in revenue to $50 million maybe even beyond. Many of the small banks like Burke and Herbert, etc do not have the capital or risk appetite to take on larger “small businesses” that typically do B2B sales.

    I completely agree with an earlier poster’s insight that large banks are very restrictive on their lending practices. The knock is we can lend money to people who don’t need it. That’s not far from the truth.

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