I know what you are thinking. I am a crackpot. I have joined the Ron Paul cadre that wants to end the Fed and go back to gold. I deliberately put up a click-bait headline because the way we regulate institutions in our financial ecosystem is totally wrong. I started blogging when Dodd-Frank was being debated. It was an absolutely horrible bill and has turned out to be an absolutely horrible law for America. But, Dodd-Frank has been good for gigantic institutions.
However, entrepreneurship and competition will find a way to circumnavigate bad public policy. I am reminded of the guy in Venezuela who used the free subsidized electricity to mine bitcoin and buy food on Amazon Prime for his family so they don’t starve.
In America, the government policy has killed community and small banks. The bureaucrats are hungry so they are starting to go up the food chain. Parts of that food chain are opting out. I love it.
The Bank of the Ozarks manages $21B in assets. That sounds like a lot but in the banking world, it’s not much. The Bank of the Ozarks can make different kinds of loans and has different sorts of customers than a JP Morgan would. Americans have all kinds of different capital needs and we need all kinds of different sorts of financial institutions to fill in the cracks. Free, open access to capital builds a better society.
It was costing $OZRK a lot of money to juggle all the regulators it had. They were regulated by the Federal Reserve, the Federal Deposit Insurance Corp., a state banking agency and other smaller regulators. See, you might think regulation is a good idea and that “we got those dirty bankers that caused the financial crisis” but the reality is all the regulation makes it a lot more expensive. What makes it worse is that the regulations they passed didn’t do anything to make the financial system safer despite what you might hear. More expense means you don’t get a loan and if you do the cost to get that loan is significantly higher. Here in Chicago, there is a firm that grew out of that problem, Akouba Credit. If you are a small to medium size bank check them out.
When I was in NYC on Wednesday bankers were really transparent in their thirst for regulation technology companies to cope with the layers and layers of regulation they are forced to deal with just to operate their businesses. They spend large sums of money structuring themselves legally to be able to grow and do business. That’s a waste of capital, time, and talent. Especially because all that money does nothing to improve the safety or vitality of the banking system and it certainly doesn’t allow capital to flow to underserved places that need it.
This is a huge problem and one that I hope experienced banking people with an entrepreneurial bent hop on. Why isn’t there a privately managed transparent open sourced banking regulator? Why aren’t there open sourced systems that allow banks to fight back efficiently against over-regulation?