Big Banks: What Happens When Customers Cease to Believe?
By Staff News & Analysis - November 28, 2014

American banking has its own Tea Party … Like the anti-establishment wing of the Republican Party, the American banking business has its own version of a Tea Party: the Independent Community Bankers of America. In just the past week, the trade group has vociferously opposed the nomination of a Wall Street banker to the Treasury and hailed a bill that would increase congressional oversight of the New York Federal Reserve Bank. These are the plaintive cries of a dying breed of banker. – Reuters

Dominant Social Theme: Bigger banks are better.

Free-Market Analysis: This article presents us with a predictable meme regarding financial centralization as a competitive advantage. When it comes to banks, this is an especially ubiquitous theme.

That's because those behind the century-old banking consolidation are desperate to establish three points to be placed beyond debate.

First, the evolution of mega-banking is a free-market trend, an unstoppable evolution.

Second, the biggest entities and thus the biggest banks are always the most efficient. Efficiency in fact drives further consolidation, or so we are told.

Finally, the competences generally of big banks are greater than smaller facilities. They attract the "best and brightest."

Here's more:

ICBA, whose trademarked motto is "the nation's voice for community banks," claims 5,000 member firms representing some 24,000 branches and 300,000 employees. These banks hold $1.2 trillion in assets and $750 billion of loans. The association has been around for years, but since the global financial crisis ICBA has aggressively bared its fangs against the established order of Wall Street and money-center banks.

That's understandable. Unlike mega-rivals Bank of America and Citigroup, community banks didn't receive bailouts from the federal government, though they felt the sting of the downturn. Since 2008, more than 500 mostly small banks failed, according to the Federal Deposit Insurance Corp. So politicians on both sides of the aisle have become sympathetic to their cause.

The market, however, has not been particularly kind to community banks. Recent research from Celent, a consulting firm focused on financial services, lays bare the existential challenge they face. Since 1992, 6,522 banks with assets below $100 million have disappeared, to the benefit of the biggest banks, a trend the consultancy expects to continue. It predicts a 3.1 percent compound annual decline in the small-bank population through 2019.

There are many reasons for this. The economies of scale at institutions like Bank of America and Wells Fargo allow them to invest heavily in technology, offering digital banking services and massive ATM networks that may offer greater convenience to customers. After the financial crisis, the big banks have also enjoyed a funding advantage relative to their smaller brethren.

… ICBA said it "remains deeply disturbed and frustrated by recent reports that exposed the New York Federal Reserve's culture of deference to megabanks and the largest Wall Street firms." It was referring to whistleblower Carmen Segarra's accusations that the regulator was too timid in overseeing banks like Goldman Sachs.

So many memes are present in the above. Wall Street may be the putative target of the ICBA but it is not the main one in reality. The problem that small banks struggle with involves the expansion and contraction of the business cycle, and that is a central bank creation.

Also, the article mentions economies of scale as if these simply emerged from money center bank business models. But they didn't. Money center banks themselves are products of central bank money distribution. They are big and powerful because they reside within the formal chain of money creation.

ICBA may be "disturbed and frustrated" by the "deference" that the New York Fed shows to banks like Goldman Sachs, but this is quite understandable. Wall Street is the marketing arm of the central bank colossus, which is located in Switzerland not the US.

To try to understand the current controversy over bank supervision is quite impossible if one insists on treating it as a domestic issue. All central bank policies these days are apparently coordinated by the Bank for International Settlements (and London as well) and the system will protect its own.

Not only will it protect its own, it will create conditions for the continued expansion and consolidation of big money center banks. It will drive this expansion by ensuring these banks are "too big to fail" and thus receive the funds they need to stay in business no matter what.

All of these manipulations are generated to expand and consolidate the banking/financial sector. And what is more disheartening is that banks – despite the meme of their necessity – are in the larger sense simply glorified bookkeeping shops.

Yes, they are designed not necessarily to serve global financial needs. Even the biggest of them has a more humdrum task, which is to keep track of money. Everyone's money. Your money. This is why the large banks employ so many hundreds of thousands and millions of people. So much data collection and analysis utilizes considerable brainpower.

This may sound odd, but it is surely the truth. We know from US intel data shops that Western governments are obsessed with keeping track of citizens' behaviors and actions. The only thing that Western elites are more focused on than behavior is money.

The entire financial system has been designed to track and analyze fund movements. It is putatively independent and "private" but the bigger picture reveals that money center banks work closely with central banks – and central banks work closely with federal governments throughout the West.

There's more. The reason for commercial banking has to do primarily with tracking funds, in our view. But an equally important point to understand is that banking is not really necessary. The United States got along quite well without much in the way of money center banking before the Civil War. In fact, most banks were restricted to a single branch. The biggest banks were located in New York.

There were many non-banks as well. Upscale restaurants were apt to hold gold and issue receipts. And there were surely warehouses as well, where gold was stored, and from which the modern bank evolved.

This Reuters article treats small banks as a dying breed and wants us to understand that their demise is perfectly understandable. It is not. The death of small banking in the US is driven by business cycles and central banking.

The rise of large money-center banking is not inevitable, either. These vast amalgamations are not the inevitable creation of the market but a deliberate, internationalist manifestation designed to keep tabs on everyone else.

The expansion of big banks due to their competences and free-market forces is merely a meme. And as people understand more about big banking in this Internet Era, more are figuring out that the system is not what it is represented to be and its outcomes are neither inevitable nor even justifiable.

To us, this is an important trend in the 21st century. Over time, we have long-predicted, the credibility of central banking itself will come under increasing pressure in this Internet era, and these questions will extend to money-center banking as well.

The palpable anger with the New York Fed is just the beginning, or perhaps the second step. Like so much else in the 21st century, the matrix of neat 20th century assumptions regarding business and finance are subject to continual deterioration.

As the system continues to lose credibility, other paradigms may emerge that are not so easily controlled. Such an evolution might lead to "interesting times" indeed and constitute yet another reason for deliberate asset allocation.

Two mutually opposed forces are at work in the banking industry. On the one hand, it continues to consolidate, gaining power and clout as it goes. On the other hand, the very bigness inevitably abuses and ultimately alienates customers and smaller competitors alike.

These opposite trends will generate even more confusion, ill will and marketplace "incidents" as the 21st century evolves. Those with the most prudence will anticipate this destructive trend and reduce their exposure to the formal financial structure that is now beginning to topple of its own weight.

After Thoughts

There are many methods of reducing one's exposure, including real estate, precious metals, overseas investing and general hedging. All these and more are discussed at length here at The Daily Bell; we'll continue to do so.

You don’t have to play by the rules of the corrupt politicians, manipulative media, and brainwashed peers.

When you subscribe to The Daily Bell, you also get a free guide:

How to Craft a Two Year Plan to Reclaim 3 Specific Freedoms.

This guide will show you exactly how to plan your next two years to build the free life of your dreams. It’s not as hard as you think…

Identify. Plan. Execute.

Yes, deliver THE DAILY BELL to my inbox!


Your $50 Ticket to the “$100 Billion Pot Stock Bonanza”

The $100 billion marijuana industry is dominated by penny stocks…

With legalization sweeping the country, these penny stocks have already begun skyrocketing in price…

Take action TODAY, and you have a once-in-a-generation opportunity to turn a tiny $50 investment into an absolute fortune.

Click here to find out how.

Biggest Currency Reboot in 100 Years?
In less than 3 months, the biggest reboot to the U.S. dollar in 100 years could sweep America.
It has to do with a quiet potential government agreement you’ve never heard about.

  • Guy Christopher

    I searched ICBA dot org, found a bank locator menu. Found 5 ICBA banks within 1 mile of my home, found 4 more within 2 miles. Another dozen or so around town. The branch of the mega-bank I currently use is more than 2 miles, and 5 traffic lights away. I’ll next check their services, to see what they offer that my mega-bank does not.

  • windsor1

    This is an intellectual argument with little substance. Fact is, Wall Street and the Federal Reserve owns and controls the American Economy. In election campaigns the Ponzi scheme and fraud that the financial system is, never gets aired. Even if it did, Boobus Americanus ie. the public’s eyes, would glaze over as they hit the change channel button on the TV. The public enjoys the scam as long as there is a paycheck, social security check, or social assistance check at the door on a regular basis. Wall Street continues to scam the system and banks get cheap money to gamble in commodities and push up the cost of your food and fuel. Not one banker, Wall Street scammer, or rating agency employee has been indicted or incarcerated since Neil Bush and the S&L debacle. The reality is they get bonus checks thanks to bailouts from the gov’t (you) while the public gets pink slips, salary downbgrades, longer The financial industry controls the govenment and the press. If a serious threat to their ponzi scheme emerges beit a state bank a bit coin or whatever, it will be crushed by political force, assassination or suicide. This is the reality under which we live and all the intellectual rhetoric to the contrary will not change the system as long as Boobus americanus is glued to the television, hoping to learn the truth. .

    • I am afraid this is all too accurate windsor1. The public is in a state of absolute denial and likely will remain so. The metaphor that comes to mind is boiling a frog. If the frog is placed in cold water which is gradually raised in temperature he will not jump out of the pot, as he will do, if dropped into boiling water. While middle America is being destroyed, the TV continues to drone a stream of very reassuring blather about “the recovery”. Drive through any small town and take a look at the mini-malls, then drive down main street in the same small town and look at the shops. The number of vacant businesses is truly shocking, generally around 30 to 40%, and yet complacent Americans continue to line up at Wal-Mart with food stamps, suffering in silence. Some even vote, thinking that will make a difference! An Englishman did find a way to make a difference – here is an interview with him called “the people versus the banks”:

  • Danny B

    Bigger doesn’t necessarily mean more efficient. Bigger can often mean more unwieldy.

    “It is more profitable than Goldman Sachs Group Inc., has a better
    credit rating than J.P. Morgan Chase& Co. and hasn’t seen profit
    growth drop since 2003”
    “Its total assets have more than doubled”
    “Return on equity, a measure of profitability, is 18.56%, about 70% higher than those at Goldman Sachs and J.P. Morgan”
    In a radical departure from casino banking, BND won’t loan money unless
    there is a specific revenue stream identified to repay the loan.

  • Deflationary collapse appears to be in full swing this morning, crude is currently down FOUR BUCKS a barrel to below 70. It is starting to look like the bankruptcy of Danish OW Bunker Marine is a true Black Swan Event for the crude oil complex. So far the other dominoes in the equity market have not followed suit but this may not last until the end of the day – even though we are in thinly traded holiday markets. If we do not recover some semblance of sanity, next week could be “problematic”.

  • dave jr

    The DB just keeps getting better and better.
    DB: “The only thing that Western elites are more focused on than behavior is money.”
    And what ‘behavior’ is more pertinent to elitist control freaks than economic behavior? A central accountant along with a supplanted government agency with taxing authority is able to keep watch over every productive effort, the true source of wealth creation. Other than outright, in your face, violent tyranny, it is the centralizing of the greater portions of wealth ‘profit’ that drives the centralization of power. It explains why the tax code is so complicated and convoluted, because the information on business activity (behavior) is just as valuable as the cherry-picked revenue.

    • Thanks.

    • David Mowers

      In England they are testing a new payroll check system where companies submit your pay to the tax office and after deducting the required taxes your check is re-issued to you from the government. This puts all money generated by labor into government coffers for some limited time period allowing, if they then create a Social Security stock trading fund, the government to hire Goldman Sachs to flip said monies in the market for said period of limited time and potentially generate, or lose, serious amounts of general revenues for Congress.

      They intend right now to turn our government into a wall street bank.

      • In England they are testing a new payroll check system where companies submit your pay to the tax office and after deducting the required taxes your check is re-issued to you from the government. This puts all money generated by labor into government coffers for some limited time period allowing, if they then create a Social Security stock trading fund, the government to hire Goldman Sachs to flip said monies in the market for said period of limited time and potentially generate, or lose, serious amounts of general revenues for Congress.

        They intend right now to turn our government into a wall street bank.….. David Mowers

        Methinks then would that be considered just cause to celebrate with a French style revolution which didn’t end at all well for the rich and infamous, DM. And this time would it be no better and much worse for such as be fools have much smarter beings confronting them everywhere nowadays.

        Can idiots who be also great fools on a series of follies not learn from the error of their ways, or are they always to be vanquished with virile and viral violence which cares not for dumb ignorant arrogant prisoners who should have known better than to sell themselves as servants and masters of greed and trash feeds with rotten seeds.

        • David Mowers

          I doth canst grabbish nonth satisfaction?

        • Danny B

          AMFM, did you read about Spaghetti data?

          • Thanks for the link to intel and info, Danny B. IT delivers much delicious food for thought and radical fundamentalist [irregular and unconventional] proaction and NEUKlearer HyperRadioProActive IT for both the criminalised and master minded and the crimes to be busted.

  • The merry-go-round will keep spinning till the ‘cashless society’ is hustled into place just-in-time, then your money – no more than numbers lost in a broken bank – will be replaced with a bail-in rate exchange of SDR based world currency or nothing. Like it or lump it.

    • This is the way I see it as well EU, cashless is an indisputable requirement for complete control. The order however could be bail-in first, cashless second.

      • Cashless = total audit potential for squeezing ever higher rates of taxation. Scenario could be: Banks crash, deposit funds gone, paper money declared no-longer legal tender, SDR world currency mandated, bail-in SDR deal offered on lost bank balances and SDR only offered for cash surrendered immediately to account. Sweet!

        • Ah, you have such an evil brain : ) Good thing for us you are not on the other side…..

        • David Mowers

          The switch to all digital cash already happened with the latest crash.

          • How so? I do not recall anyone but my commodity broker turning down my cash lately.

      • dave jr

        First, the drugs need to get ‘legalized’ in order for that significant revenue stream to flow cashless.

        • I was thinking, in the absence of paper money, little bags of something sweet could become a very acceptable medium of exchange instead.

        • Brilliant Dave Jr! Finally makes some sense for me of the inexplicable move to legalize drugs. I guess that puts us on a timetable that may give us some clues as to when this (cashless) is imminent.

    • David Mowers

      “Alan Blinder, former vice chairman of the Board of Governors of the Federal Reserve and professor of economics at Princeton University, said the following in 2008 “…we use the euphemism ‘print money.’ What that really means is
      somebody is on a keyboard creating electronic images of money. Large amounts of money are not cash. So these are credits at the Federal Reserve System basically. A central bank can do that; a commercial bank cannot do that.”-Forbes

  • Praetor

    When customers cease to believe? We move on. Thanks DB. Excellent as usual.

  • Crude down 7+ bucks, the CNN excuse/explanation is a lack of agreement among OPEC: nonsense!! (1) When has OPEC ever been in agreement? (2) In cases when “agreement” has been reached, was there ever ONE instance where widespread cheating did not start immediately? The agenda is to smash crude, bankruptcies in the industry are going to domino and fracking will go the way of the dodo bird. Gold down $30, Silver down a buck, next week promises to be “interesting”.

    All of this is going to put additional pressure on Russia, certainly one of the intended consequences here. The failure of the Swiss Gold Referendum on Sunday may cover for another vicious attack on the PMs. Crude price down 10% in one day.

    • dave jr

      Wouldn’t it have been great to be a fly on the wall at yesterdays OPEC meeting where they decided not to cut production, so as to lower crude prices? This is in the wake of Congress shooting down the Keystone Pipeline again when so many thought it would pass this time around. It is set to come up again in January. Remember, the pipeline is for the export of crude from North America. I believe you are right, that lower crude prices will hurt fracking and all those US jobs.
      This has sort of been done before, in reverse, with the Alaskan Pipeline; back then to bring crude into the US market, OPEC was used to raise prices. It seems the oil majors always get their way. This is just my observation, accurate or not, without judgment cast.
      from wiki:
      Nixon supported the pipeline project even before the oil crisis. On September 10, 1973, he released a message stating that the pipeline was his priority for the remainder of the Congressional session that year.[66] On November 8, after the embargo had been in place for three weeks, he reaffirmed that statement. Members of Congress, under pressure from their constituents, created the Trans-Alaska Pipeline Authorization Act, which removed all legal barriers from construction of the pipeline, provided financial incentives, and granted a right-of-way for its construction. The act was drafted, rushed through committee, and approved by the House on November 12, 1973, by a vote of 361–14–60. The next day, the Senate passed it, 80–5–15.[67] Nixon signed it into law on November 16, and a federal right-of-way for the pipeline and transportation highway was granted on January 3, 1974.[68] The deal was signed by the oil companies on January 23, allowing work to start.[69]

      • Thanks dave jr. Wars are taking place on planned or actual pipeline routes in Afghanistan, Iraq, Syria, and Ukraine. Think of the money you could have made, if you had known in advance that the price of crude oil would collapse in the face of all this and the failure of keystone! Billions have been made in the futures markets by those who DID know because they control all these markets so completely. Billions lost by those who followed logical assumptions and were long. Long and wrong……..

      • Mary Bell

        This suggests fore-knowledge of 1973 the OPEC oil embargo of mid-October of 1973.
        The cause for the increase of oil, (from $3/barrel to $12/barrel) was the inhuman treatment of Palestinians of by the government of Israel.
        The USA received warning that it would stop supporting Israel’s genocide, or face a 4X increase in the price of oil, with a 3 day deadline.
        Clearly, we couldn’t stop supporting the zio-central banking (Federal Reserve Corp.) Emperor (Rothschild) !
        When the citizens of the USA, and other nations of the world took this abuse like sheep, the zio-fascist bankers shifted into high-gear. They have been the locus of the world misery, war, and economic takeover since then.