Wall Street Numbers Still Not Adding Up

By Rebeca Romero Rainey

“There are three kinds of lies: lies, damned lies, and statistics.”

This phrase, popularized by Mark Twain in 1906, describes the persuasive power of statistics to bolster weak arguments. Well, even though 113 years have passed since Mr. Twain published these views, the megabanks and their trade associations are taking a page out of the history books.

Ahead of Wednesday’s House Financial Services Committee hearing, the megabanks are working to bolster their reputations by picking and choosing which data best fits their narrative—leading to skewed articles focused on low- and moderate-income communities and consumer sentiment.

The most recent “research” takes a huge leap by implying that the presence of very large banks in local communities causes positive consumer sentiment—the larger the bank, the more positive the sentiment. An alternate and perhaps more plausible argument might be that the largest banks in the nation are locating in communities where consumer household sentiment is already high because consumers are wealthier. In fact, is it possible that large banks are abandoning smaller and less wealthy communities to seek greener pastures?

The article goes on to make other questionable assumptions and dubious conclusions. While policymakers and consumers will likely see the research for what it is, we wanted to take a moment to set the record straight. When looking at the numbers in their entirety, the data continue to show that community banks are an excellent choice for consumers in urban, suburban and rural communities. Here are the facts:

• the average community bank has maintained or increased its deposit market share in both rural and urban communities since 2008,
• community banks outpace large banks in their average number of banks operating in both rural and urban markets by a 3-1 ratio,
• community banks make roughly 60 percent of small-business loans under $1 million and 80 percent of the banking sector’s agricultural loans,
• community banks remain the only physical banking presence for one in five U.S. counties,
• community banks focus a relatively large share of their resources in low- and moderate-income tracts, and their lending in these areas is more consistent with local demographics than megabank loans,
• community banks added more than 700 bank offices between June 2017 and June 2018, whereas noncommunity banks shrunk by 384 offices over the same period,
• community bank loan growth has exceeded growth at noncommunity banks for six consecutive years,
• the largest financial institutions themselves recently reported that community banks are more than tripling the deposit growth of their larger competitors in rural communities,
• low- and moderate-income census tracts make up a significant percentage of megabank branch closures, topping 80 percent for JPMorgan Chase in recent years, and
• community banks have consistently demonstrated their safety and soundness with higher capital ratios and better loan quality than the largest institutions.

As policymakers again investigate how the megabanks caused the last financial crisis, they should be aware of new reports on the megabanks’ massive pool of leveraged loans to highly indebted companies. Let’s hope these massive institutions don’t repeat their mistakes of the last crisis. The American people and the American economy deserve better.

So while community banks continue focusing on meeting the needs of local communities and spreading economic opportunity to every corner of our country, we hope that anyone seeing the latest megabank research takes it with a grain of salt. There is certainly much more to the financial services picture, especially when it comes to community banks and their vital and unmatched role in serving the needs of their customers and communities nationwide.

Rebeca Romero Rainey is president and CEO of the Independent Community Bankers of America.