A migration of the banking business to large corporations that can hardly be reached personally in the area would be a bad trend.
(Photo: Bloomberg)
Anyone who moves in the USA beyond the big metropolises often sees branches of the major bank Wells Fargo, which functions like a kind of giant savings bank. Otherwise, the large financial groups such as JP Morgan and Citigroup do not play a major role in the area, at most Bank of America is still represented.
In fact, the United States Deposit Insurance Scheme (FDIC) still has around 4,700 affiliated institutions, although many banks have been closed over the years. Some of these are small banks with only a few employees. But mid-sized regional banks are also important, including the recently closed Silicon Valley Bank (SVB) and the First Republic Bank in San Francisco, which is being bailed out by a joint effort by the big banks in cooperation with the Federal Reserve Board (Fed).
The small and medium-sized banks are extremely important for the US economy away from the large metropolises and thus also for the entire domestic economy. They are often the only personal contact with the financial system. Business people, builders and farmers get their loans there, which are then often later resold to investors. The small bankers are also often the recognized economic experts in “towns”, which in Germany would at best be considered villages in terms of size.
But that’s not all: they often support local politicians with money for election campaigns. They hold joint events with them, and their very effective lobby organization, the American Bankers Association, which is dominated by the small financial institutions, makes very precise specifications as to what political demands politicians should be confronted with.
Against the background of the upcoming election campaign for the US presidency in the coming year, it would be disastrous if the economy were to collapse in parts of the country, some of which already feel left behind. America’s political divisions would be exacerbated. A migration of the banking business to large corporations that can hardly be reached personally in the area would be a bad trend. Seen in this way, the Fed is currently not only rescuing the financial system, but also politics. It probably prevents a drift into even worse chasms.
Don’t just save the millionaires
Also important in this context: With the SVB, the Fed not only saved banks, but also the unique financing culture of Silicon Valley. There in California it is possible to find financiers with just a brilliant idea plus a coherent concept.
As a financial metropolis, New York only comes into play when it comes to going public, and ideas and concepts are not enough there, concrete figures are needed. If you imagine that start-ups had lost millions of money in the SVB bankruptcy that they had previously received from venture capitalists, then this would have extremely jeopardized this financing culture, which is unique in the world.
But this rescue has a political downside. Very quickly the accusation arose that tech millionaires in California were being rescued here. That’s exactly why you can’t let the “little people” down. Against the background of dramatic economic inequality in the USA – not only between population groups but also between regions – it would be downright fatal to let the nondescript, remote America run into a financial crisis.
Unfortunately, none of this is the only political pressure the central bank is exposed to. The fact that many Americans depend on the stock market for their old-age provision alone is a problem that we in Europe are far less familiar with.
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