Washington Post, February 28, 2013 by Timothy Carney

I’m not saying the Big Banks love the 2010 Dodd-Frank financial regulation bill. I’m saying they can live with it — and that their smaller competitors cannot. Thus, the law will cause more consolidation in the financial sector, possibly leading to more instability.

This is part of what JP Morgan chief Jamie Dimon meant when he said Dodd-Frank would expand the “moat” around the big banks. This is what the Columbia (Mo.) Business Times reported on, regarding the regulatory threat to small banks. This is part of the reason Wall-Street’s lobbyists talked Republicans out of trying to repeal the law.

Bloomberg News has the latest report on this front [emphasis added]:

Small banks will seek mergers because their management teams are aging and new regulations are too costly to bear, [investor Joshua Siegel] says.

“If you need one major overriding theme of the industry in the next three, five, seven, 10 years: massive consolidation, thousands of banks,” says Siegel, whose firm managed $5.1 billion as of the end of last year and invests in small banks. In the U.S., “I do see probably anywhere from 2,000 to 4,000 banks being swallowed up, and what you’ll see then is a more-concentrated system.”

Read the Washington Post story on small bank struggles here.

Greater Cincinnati banks’ loans are on the rise, but not all borrowers are created equal writes Steve Watkins of the Business Courier.

Plenty of potential borrowers complain that banks aren’t lending when in reality the borrowers’ credit history leaves a little something to be desired.

Industry sectors make a big difference, too, at least when it comes to demand. Bankers say they’re willing to make loans across the board. But a big chunk of their requests are coming from health care and manufacturing firms these days.

John Marrocco, head of business banking at Fifth Third’s Greater Cincinnati affiliate, said plenty of manufacturers are expanding and seeking money.

“That’s done better than we would have expected,” he said.

He attributes a lot of it to international business, which he’s seeing start to pick up after the European slowdown hampered overseas growth.

Read the story about Cincinnati loan activity at the Business Courier.

Phoenix Business Journal – by Michael Sunnucks

One of the admonitions after the 2008 Wall Street collapse and $700 billion bailout was that big banks cannot achieve “too big to fail” status.

“Never again will the American taxpayer be held hostage by a bank that is ‘too big to fail’,” said President Barack Obama in a January 2010 speech. Ironically, it was the 2008 gas price surge and Wall Street bailouts that cinched Obama’s win over U.S. Sen. John McCain, R-Ariz.

Roughly three years since that speech and five years since the bailout crisis, the biggest banks are getting bigger and the prospects continue to increase for smaller and community banks to get acquired.

Read the story at the Phoenix Business Journal.

Chris Mayer at The Daily Reckoning wrote a compelling article on February 28th about small banks:

The US government is going to kill the small banking industry in the US. The  irony is hard to miss. It was not the small banks that threatened the financial  system in the crisis of 2008. Yet they will bear the brunt of the regulatory  costs imposed in its wake. The end result will be that US banking assets will  collect into the hands of even larger banks.

It is a shame. Yet the death of the lamb is the life of the wolf, as an old  saying has it. In other words, it is not all bad for everybody, as I’ll  explain below.

First, let me begin with a piece of anecdotal evidence from the departing CEO  of Third Street Bancshares, based in Marietta, Ohio. His name is James Meagle  Jr., and he had been in banking for 40 years.

A CEO leaves some company somewhere every day. That, in itself, is not news.  But few CEOs depart by saying that the company he’s leaving might not survive.  Citing tremendous changes in regulatory costs and compliance issues, Meagle said  he “didn’t have the patience anymore.” His old bank will have to spend about  $100,000 to meet new demands from regulators. For a little bank with one branch,  $100,000 is a lot of money. I bet it is a big chunk of the money it makes in a  year. Third Street is privately held, so we can’t know for sure.

“I don’t know how we’re going to be able to make it,” Meagle tells SNL  Financial. “We can [survive], but we’re just spending so much time and energy  complying with these new regulations.”

“Absolutely ludicrous,” is how he described the regulators’ level of  scrutiny.

Read more:  The Death of Small Banks in the US http://dailyreckoning.com/the-death-of-small-banks-in-the-us/#ixzz2MOnvGZSY – See more at: http://dailyreckoning.com/the-death-of-small-banks-in-the-us/#sthash.QpnhqhMH.dpuf

Read the full article on small banks affected by policy here.

From MoneyNews

Outgoing Treasury Secretary Timothy Geithner thinks the U.S. economy will strengthen this year — as long as Congress avoids cutting spending too deeply in a budget deal and Europe’s economy gradually improves.

In an interview on his last day in office, Geithner told The Associated Press, “The economy is stronger than people appreciate.”

He said he agrees with many private forecasters that growth will accelerate this year, in part because the U.S. economy is no longer being held back by oil shocks and Europe’s debt crisis has subsided.

Asked about his future, Geithner ruled out the possibility that he would return to Washington as chairman of the Federal Reserve next year, when Ben Bernanke’s term ends, if asked by President Barack Obama. Geithner has been viewed as among the front-runners for the Fed job. He has been close to Obama, and before joining Obama’s Cabinet as Treasury secretary, he had led the Federal Reserve Bank of New York.

“There are lots of people more qualified than me,” Geithner said. Obama last week nominated Jack Lew, his chief of staff and formerly the White House budget director, to succeed Geithner as Treasury secretary. Lew’s nomination is expected to win quick approval in the Senate.

Geithner was the last remaining original economic advisor to Obama.

Read the story of Geithner’s parting words here.

From NewsMax – MoneyNews

Federal Reserve Chairman Ben Bernanke’s unprecedented bond buying pushed the Fed’s balance sheet to a record $3 trillion as he shows no sign of softening his effort to bring down 7.8 percent unemployment.

The Fed is purchasing $85 billion of securities every month, using the full force of its balance sheet to stoke the economic recovery. The central bank began $40 billion in monthly purchases of mortgage-backed securities in September and added $45 billion in Treasury securities to that pace this month.

“We’re in uncharted territory,” said Julia Coronado, chief economist for North America at BNP Paribas SA in New York, and a former Fed economist. Even as “the easy money will flow through financial markets and into the real economy at some point and lift us to a better growth trajectory,” the U.S. faces “a lot of risks,” she said.

Read the full story here.

From MoneyNews

Small banks are going out of business in droves and blaming new government regulations.

“We were a very soundly run, profitable, growing bank that provided great rates and services,” Ron Wheeling, chief executive of Shelter Financial Bank in Columbia, Mo., told the American Banker. “The government is putting us out of business.”

Shelter Insurance sold its banking unit, joining other insurance companies, such as MetLife, Allstate and Prudential, in bailing out of banking.

The specific culprit, according to Shelter, is the Dodd-Frank Act requirement to provide two sets of financial statements, based on different accounting principles, to different regulators.

Keeping two sets of books would have cost $1 million a year, according to Wheeling.

The company was submitting financial statements to the Missouri state insurance regulator using statutory accounting principles used by insurers, according to the American Banker.
Then Dodd-Frank, passed in 2010, required it to give the Federal Reserve financial statements using the full-accrual generally accepted accounting principles (GAAP).

Read the full story here.

From Accounting Today:

Tax forms from the federal government and many states may be delayed in the aftermath of the fiscal cliff legislation, one of the largest tax preparation chains warned.

Liberty Tax Service, a subsidiary of JTH Holding, Inc., warned of possible delays in the filing of tax returns due in part to the late congressional approval of the American Taxpayer Relief Act of 2012. Many of the changes to tax law affect the forms to be used for 2012 tax returns, and the IRS will need to work at an unprecedented pace in order to get the needed tax forms released to the various tax preparation firms and software companies, as well as to taxpayers.

The IRS had previously announced that it would not begin to officially process any tax returns until January 22, which is approximately one week later than has historically been the case. This late start, even if the IRS holds to the January 22 date despite the late-breaking tax changes, could mean delays of federal refunds anywhere from 10-21 days, when compared to prior years. In some cases, the delays for paper tax return filings may exceed those for electronically-filed returns.

Read the full story at Accounting Today.

From CNBC:

Dane Stangler has never owned a small business, and doesn’t expect to ever own one. But he’s in a position to understand the challenges facing people who own small companies.

Stangler is the director of the Research & Policy department at the Ewing Marion Kaufmann Foundation. His job is to help the foundation determine how it can encourage and mentor entrepreneurs. His department conducts research and surveys and analyzes studies done by researchers at other institutions. So he is familiar with the issues that entrepreneurs and small businesses face.

But small companies of all sizes face some of the same problems: the weak economy and the prospect of federal budget cuts.

Read the full story at CNBC.

From The Washington Post:

Community banks and credit unions are reporting lower debit-card processing revenue as a result of financial reform laws, sparking concerns that they may be forced to impose new fees on customers to offset their losses.

Their experience stood in contrast to new reports published by the Federal Trade Commission and the Government Accountability Office, which suggest that a provision meant to protect small banks from debit-card reform has indeed shielded them from any significant losses in revenue. The provision exempted small financial institutions from reducing their card processing fees (or “swipe fees”) but capped them for large banks. Regulators said the change prompted credit-card companies to create a two-tiered pricing system in which small banks can continue charging customers higher rates each time they use their debit cards.

Read the full  Washington Post story on new debit card rules.