In what I consider a testimony to the strength of capitalism left alone, smaller banks around the country like Prosperity Bancshares (NASDAQ:PRSP) and MB Financial (NASDAQ:MBFI) are doing what should have been done in the first place: buying up failed rivals and turning them around, or growing organically as consumers look for stronger banks. If that would have been the practice from the beginning, we would have seen a much brighter picture going forward than the mess now faced by the overall banking industry and the economy.
By mess I mean the increased government ownership of these companies and draconian rules applied where government shouldn’t be treading. Government interference and its inevitable unintended consequences always emerge once the smoke clears, and that’s happening already.
As far as the smaller banks, they’ve not only been growing through acquisitions, but they are also growing organically, strengthening their deposit base and building up their assets.
Consumers have also been disgusted with the practices and performances of the huge banks which they were forced to bailout by the government, creating more incentive to shop around and find a safe place for their cash.
Other practices that have changed, which is helping smaller banks grow organically, have been the cutting back on spending, which has also meant more money in savings accounts, money market accounts and CDs. Consequently, deposits have grown significantly, making it highly likely that a new group of regional banks will emerge and shift the banking picture drastically; all of which is what makes capitalism great when it isn’t interfered with.
We’ll now never know what would have happened on the national level with the largest banks, as the bailouts kept that from happening. The problem with that is a much stronger group of banks would have came forth who had good banking practices and in a much stronger place than those banks not allowed to fail.
Now we have those same banks declared “too big to fail” much larger than they were, and basically continuing on in their same practices, no matter what the assertions and meaningless rules applied to them in order to allegedly keep them from repeating those practices.
It would have been better to have allowed them to fail and to not have to regulate poor-performing banks, and have banks take over their deposits and assets who were running their own banks very well. That would have upset the banking cartel which has had so much influence on government officials, and they couldn’t have those relationships interrupted; a major part of the banking story not talked about much.
Concerning organic growth, we’ll see many smaller banks take on new and important roles, as projections are they will continue to grow in that manner for many years. Add to that the continuing collapse of hundreds of banks going forward, and a lot of the regional banking landscape will be very different several years from now, with new players taking their place in the hierarchy. It remains to be seen whether that’s a good thing or not, and if they change the solid businesses practices which got them there for the ones that crushed the larger banks, which helped get us into the economic mess we’re in in the first place.
