It's difficult to see how community banks can be insulated from the negative effects of proposals to break up the country's largest banks, ABA Chairman-Elect Jeff Plagge said in an opinion piece published by American Banker.
"Some people assume that when big banks lose, community banks win. I'm not convinced," said Plagge, who is president and CEO of Northwest Financial Corp., a $1.5 billion bank community bank holding company in Arnolds Park, Iowa.
Plagge noted that a government-mandated break-up of a large bank could produce a dozen or more superregionals "that would make a direct play for the kinds of small business, agricultural and commercial real estate loans that are the bread and butter for banks like mine." He added that it would be more difficult for banks of any size to attract capital "once Uncle Sam has established his rights to further manage the business of banking."
Proposals that dramatically increase capital requirements also would force many banks to the sidelines of the economy while they bring their ratios in line, Plagge said. It would be hard to insulate community banks from the macroeconomic effects of such a disruption.
"So let's be careful what we wish for. Let's find solutions that first do no harm to the recovery and the economy in general," Plagge said. "Second, let's bring about positive change for community banks and the banking industry as a whole."
Read the op-ed.