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Kiss Your Local Bank Goodbye

Written by Gary North on November 1, 2012

Small banks will disappear over the next decade — maybe half of them. That is the estimate of several analysts.

The big banks are already dominant. They will swallow up smaller banks.

The problem is this. Will local employees of a New York bank have enough clout to give loans to local businesses? Centralization of decision-making is bad for local businesses.

Do you work for a small business?

This is from Fortune.

Emmett Daly, a Sandler O’Neill dealmaker who specializes in small banks, predicted at an industry conference put on by Mergermarket on Thursday that the number of banks in the U.S. would shrink to a few hundred. There are currently more than 7,000. . . .

Kamal Mustafa, who heads up bank consulting firm Invictus and is a former Wall Street M&A banker, says it’s not just Dodd-Frank. Low interest rates and the Fed’s annual stress tests are making it tough for small banks to survive as well. His firm looked at bank profits and capital rules and came to this conclusion: Nearly 2,000 banks need to sell. “There are a large number of banks that are limping toward oblivion,” says Mustafa. “Capital requirements have gone up too fast, and rates have gone too low. There’s no way out.”

Like post offices and small businesses in general, law makers are likely to come to the rescue of small community banks. What’s more, at least so far small banks haven’t done significantly worse under Dodd-Frank than big banks.

Still, it’s probably true that all the rules we have lumped on the banking industry in a good faith effort to make our financial system safer will most likely make it harder for small banks to stick around. The real question is how much we should care.

If you own a small business, you had better care.

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