Having sympathy for bankers can be difficult.
Bankers had a "little" something to do with the Great Recession, and then faced almost no consequences for their reckless behavior. Research has consistently shown that some banks have systematically discriminated against people of color. However, banks--especially local banks--are essential to entrepreneurship and startups. While venture capital gets all the press, small businesses often depend on bank loans, and entrepreneurs who don't necessarily look great on paper benefit from bankers in their community who know that creditworthiness is far more than just a three-digit score.
Unfortunately for those entrepreneurs, local banks are disappearing.
At the end of 2017, there were 5,670 FDIC-insured banks in the United States. That is roughly half the number of federally insured banks that existed in the 1990s. In the two decades since, thousands of banks were purchased by or merged with larger national banks.
A lack of locally owned banks can be a particular problem in cities where any alternative to bank funding is hard to find. St. Louis, the metropolitan area I call home, has a thriving startup scene. Yet venture capital remains relatively scarce. In 2016, Missouri startups attracted $147 million in venture funding. While that was less than the state's startups raised in the previous two years, it's still relatively impressive.
That said, $147 million is about $50 million less than the average asset size of a single community bank.
And, according to the St. Louis Business Journal, St. Louis is experiencing rapid bank consolidation. In 2011, the city had 145 local banks. Today that number is down to 66. Of course, St. Louis is just one city, but bank consolidation is a national phenomenon--and one that is making access to capital increasingly difficult for entrepreneurs.
One reason for the consolidation is the cost of complying with the regulatory requirements that came with the 2010 Dodd-Frank legislation passed during the financial crisis.
The Senate recently passed a bipartisan bill designed to ease the regulatory burden Dodd-Frank created for smaller banks, but easing the regulatory burden alone won't result in the return of local banks. Starting a bank is really, really hard. If we want startups and entrepreneurs (and, you know, regular people) to have access to capital, we must make that a public policy priority. Consolidation always has its advantages, especially for the executives and shareholders who make the decision to consolidate. Simply doing away with regulations and letting the free market do its magic won't work.
Bank consolidation hasn't served entrepreneurs and startups well. Despite the media's focus on startups, new business starts have been declining for decades--and it's not because Americans are less entrepreneurial than we once were. A lack of access to capital is a huge part of that story.
We need to change that. Easing the regulatory burden on small banks is a step in the right direction (so long as the Senate bill isn't just an excuse to deregulate all banks and return to pre-Dodd-Frank craziness). However, more needs to be done. If fewer regulatory burdens are what small, local banks need to stay in business, we need to take them at their word--but in turn place more restrictions and conditions on future mergers.
That might sound like government run amok, but some of the borrowers who would benefit the most are entrepreneurs.
And though America seems to agree on very little, one thing we do agree on is the need for more entrepreneurs.