The New Rules Project's Community Banking Initiative
Making the Financial System Work for Us
The financial crisis and its economic aftershocks have spawned the
first serious examination of the structure of our current banking
system and the public policies that have fueled consolidation over the
last 30 years and untethered financial institutions from their
communities.
From the 1930s through the 1970s, state and federal policies nurtured a
strong network of community-based financial institutions (both banks
and credit unions). Beginning in 1980 and continuing through the last
three decades, Congress and federal regulators systematically
dismantled these policies.
The result has been a tidal wave of mergers and an unprecedented
concentration of market power. The number of community banks (those
with a $1 billion in assets or less) has fallen by more than half,
while the four biggest banks - Citigroup, JP Morgan Chase, Bank of
America and Wells Fargo - now hold nearly 40 percent of all U.S.
deposits and control half of all bank assets.
This delinking of banks from their communities has opened up a vast
distance between depositor, borrower and lender, and has spawned a
financial system that devotes an increasing share of its resources to
speculative activities over productive investments.
Today, a growing number of economists, policymakers, and citizens
believe that this separation was at the root of the financial sector's
collapse in the fall of 2008 and that we ought to look at the benefits
of moving toward a financial system that is primarily composed of
independent banks and credit unions. Although severely diminished as a
result of public policies embraced over the last 30 years, our nation
is still home to about 8,000 credit unions and more than 7,600
community banks.
The New Rules Project launched the Community Banking Initiative to
provide the empirical and conceptual underpinnings for a
community-scaled financial system, which will reduce systemic risk and
strengthen local economies, and to identify public policies that can
revitalize such a system. We'll be posting a growing body of reports,
articles, and policy models to this page.
How You Can Get Involved in the Community Banking Initiative:
September 15, 2011
One of the most significant, but least noticed, consequences of the
rapid and dramatic consolidation of the banking industry over the last
decade is how much it has hindered the U.S. economy’s ability to create
jobs. Our financial system is top-heavy with big banks that are scaled to meet the needs of large multinational corporations. There’s no single solution to this problem, but one of the most promising strategies involves
creating state-owned banks that can bolster the lending capacity of
local banks, helping them grow and multiply.
More
By David Morris on August 12, 2011
There is much to chew on here. Recall that Standard and Poor’s justified
its action on US credit in part “because the majority of Republicans in
Congress continue to resist any measure that would raise revenues, a
position we believe Congress reinforced by passing the act.” But the
driving force behind the Republican Party’s refusal to raise corporate
or income taxes is giant global corporations, some of which now have a
credit rating better than that of their government.
More
May 12, 2011
North Dakota is the only state that has established a publicly owned bank. And what a difference it has made: Thanks largely to the Bank of North Dakota, the state has four times as many local community banks per capita as the national average, and they have a much larger share of the market. Having a larger and healthier network of local banks has led to more small business lending and greater job growth. We've published a set of
graphs and an
analysis that explain and illustrate the benefits of a state bank.
More
March 18, 2011
What's really at issue in the fight over the CFPB is not how the agency
is structured or how much power it will have, but whose interests it
serves.
More
By David Morris on March 1, 2011
From all accounts, Charles Ferguson’s acceptance speech was the highlight of the Oscars. After winning an Oscar for Best Documentary for Inside Job, a compelling and searing indictment of Wall Street’s role in the economic crisis, Ferguson injected some much-needed real world relevance amidst the fabulously glitzy proceedings. “Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail — and that’s wrong.”
More
August 25, 2010
A top Federal Reserve official said yesterday that locally owned banks
do a better job of serving communities and small businesses, but they
are threatened by federal policies that favor their big competitors.
In testimony before a U.S. House of Representatives subcommittee, Thomas
Hoenig, president of the Federal Reserve Bank of Kansas City and the
Fed's longest-serving policy-maker, said that community banks as a whole
have held up better than megabanks over the course of the recession,
but warned, "The more lasting threat to their survival concerns whether
this model will continue to be placed at a competitive disadvantage to
larger banks."
More
July 14, 2010
With the now-expected passage of the financial reform bill, giant bankssee a golden opportunity to finally put the financial crisis, alongwith their culpability for wrecking our economy, in the rearviewmirror.
But the legislation leaves us at best only modestly less vulnerable to another meltdown.And it fails utterly to confront a deeper problem: even in the best oftimes, our banking system does not serve us very well.
More
June 22, 2010
In the perilous aftermath of one of the worst financial disasters inU.S. history, one might expect credit unions -- which, after all, aremostly tiny by the standards of the banking industry and operated on acooperative, not-for-profit basis -- to be struggling. But data fromthe last 18 months show that the country's 7,600 credit unions are infact outperforming big banks and rapidly expanding their market share.
Since the start of 2009, credit unions have added more than 1.5 millionnew members. Their deposits grew by a whopping 10 percent in 2009 andare on track to grow even more this year.
More
May 18, 2010
One of the more menacing amendments circling the financial reform
bill is a proposal by Senator Tom Carper (D-DE) that would bar states
from enforcing consumer protection laws against national banks and
would make it easier for banks to claim immunity from state laws they
don't like.
This dangerous measure has some legs.
The big bank lobby has described it as their "number one" priority. It has support from conservative Democrats and Republicans. The Washington Post editorialized in favor
of it today. Although the White House opposes Carper's amendment,
Senator Dodd seems lukewarm at best on the question of state authority
and has refused to rule out including a version of Carper in his
"manager's amendment," a package of negotiated changes to the bill that
Senators who want financial reform to pass have little choice but to
accept.
Here's why Carper's amendment would be a disaster...
More
April 19, 2010
Across the country, independent business groups that have been urging
people to "buy local" are now making "bank local" an increasingly
prominent part of their message, bringing new grassroots visibility and
organizational infrastructure to the Move Your Money movement.
"The message that big banks don't have our interest at heart and small,
local banks do is really resonating," said Joe Grafton, executive
director of Somerville Local First, a two-year-old coalition of independent businesses in Somerville, Massachusetts.
More
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