Markets In Your Community

Complex Ecosystem of Large, Small Banks is Healthy

How important is the relationship between large and small banks? In a free market system, it’s critical to have financial institutions of varying sizes to promote the free flow of capital, manage risk, and support economic growth and prosperity.
That’s the case Jamie Dimon, chairman and CEO of financial industry leader JPMorgan Chase, makes in a recent Wall Street Journal op-ed, “Large Banks and Small Banks Are Allies, Not Enemies.”
Dimon argues that the tendency to view large and small banks as adversarial players is overly simplistic. In a high-functioning economic system like that of the United States, smaller and larger players are mutually supportive. He writes:
There is a powerful temptation in the current economic climate to frame issues as simple stories of big versus small or Main Street versus Wall Street. But the financial-services industry does not conform to simple narratives. It is a complex ecosystem, because there is no other way to effectively serve America’s vast array of customers and clients. A healthy banking system depends on institutions of all sizes to drive innovation, build and support the financial infrastructure, and provide the essential services that allow the U.S. economy to thrive.
By way of illustration, Dimon notes that smaller banks play a vital role in communities throughout the nation. These banks are rooted in local communities and can offer a different level of localized service that meets the needs and preferences of their customers.
At the same time, smaller banks need larger banks to provide a broader range of services, such as processing checks, clearing international payments, and more. Larger financial institutions also play an important role in connecting smaller banks to the deeper pools of funding available through capital markets, by securitizing mortgage loans and other cash-flow assets for smaller banks. Those practices serve to manage risk and promote needed liquidity in the banking system.
Dimon’s op-ed illustrates that the financial system needs regulatory balance to ensure conditions under which both small and large banks can thrive and better serve their customers:
Large banks ultimately would be diminished if regional and community banks were weakened and, just as surely, those smaller institutions would lose out if America’s large banks were hobbled. The U.S. needs a banking system that serves the needs of all Americans, from customers getting their first mortgage, to farmers and small business owners, to the largest multinationals.
Dimon points out that in today’s heightened regulatory environment, smaller and regional banks – and the customers and communities they serve – may be disproportionately impacted.
I believe I can say, on behalf of most of the nation’s largest banks, including the one that I lead, that we are very supportive of the efforts by small and regional banks to work responsibly with their regulators and, if necessary, the Congress to address new rules and requirements.
Dimon’s argument is a much-needed reminder that while maligning the financial industry is often popular-especially in a heated election year-we shouldn’t lose sight of how the interconnected financial system works together to serve the larger economy.