InfoKwik Kansas City Area News

Email:

To instant news updates in your email.

Never miss a story!

Advertise on this site

The federal government needs to be careful not to put community banks at a disadvantage to large financial institutions, Tom Hoenig said in testimony to the U.S. House of Representatives Subcommittee on Oversight and Investigation.

Hoenig, president of the Federal Reserve Bank of Kansas City, said community banks are essential to the prosperity of local and regional economies throughout the country.

“Community banks have maintained a strong presence despite industry consolidation because their business model focuses on strong relationships with their customers and local communities,” Hoenig said. “Community banks serve all facets of their local economy, including consumers, small businesses, farmers, real estate developers and energy producers. They know their customers and local markets well; they know their success depends on the success of those local firms; and they recognize that they have to be more than a gatherer of funds if they hope to prosper.”

Hoenig said the community bank model held up well during the recession and abnormally slow recovery, compared with the mega-bank model that had to be propped up with taxpayer financing. He said community banks generally had higher capital reserves, putting them in a better position to weather future problems and continue to support lending.



“The more lasting threat to their survival, however, concerns whether this model will continue to be placed at a competitive disadvantage to larger banks,” Hoenig said. “Because the market perceived the largest banks as being too big to fail, they have had the advantage of running their business with a much greater level of leverage and a consistently lower cost of capital and debt.”

Hoenig said the 20 largest banking organizations now control just less than 80 percent of the entire industry’s total assets. He said he expects that trend to continue.



“Factors such as higher regulatory compliance costs and changing technology will encourage community bank consolidation,” Hoenig said.

Hoenig said community banks have faced challenges before and survived. He said that if they are allowed to compete on a fair and level playing field, the model will continue to be a winner.

Comment:

My suggestion is to support your community banks that will work with you when you need them.

InfoKwik KC News is a Professional Member