Further government intervention into the banking industry is creating greater divides between banks. This can only hurt the industry, long term. Notwithstanding nine of the nation’s largest banks that were essentially forced to take the money, TARP’s Capital Purchase Program is forcing bankers to line up either with the government or independent of the government.
This is a high visibility decision. There are web sites which are tracking the banks that participate in CPP. This is one example.
Furthermore, many banks are publicizing their decision — banks on both sides of the question. Those taking the money are running ads that say things like, “eligibility is limited to only well-run, highly-capitalized banks,” which implies that banks not taking the money can’t qualify for it. And I am seeing other ads run by banks that are refusing the money that say “We don’t need the government bailout,” which implies that the banks taking the money need a bailout.
Traditional banks have enough competitors that it is really too bad to see them competing amongst themselves.
The most recent news that the Treasury may buy as much as 40 percent of Citibank only validates the worst fears community bankers have held for decades –- that the taxpayer would end up bailing out the one of the nation’s largest banks.
The banking industry has long been divided between those who believe all banks should band together, and those who believe that the largest banks and the majority of smaller banks are so different that they really represent two distinct groups. The more government takes over the affairs of the largest banks, the harder it will be to convince community bankers that all banks should band together.
It is amazing to watch the incremental approach the government is taking with Citi. If the government were concerned about the viability of virtually any other bank, it would simply take over the whole thing in one Friday-afternoon event. But in Citi’s case, they are taking this gradual approach. The drama is unfolding before our eyes. When will regulators take more than 50 percent of the bank’s stock? When will they take over the whole thing? Let’s hope they never have to.