Community banks are spotlighted at economic conference

Community banks are essential to the future of Tennessee’s economic growth, a top economic official told the MTSU Economic Outlook Conference on last Friday.

“[Community banks] are under fire and they’re under challenge today,” said Greg Gonzales, commissioner of the Tennessee Department of Financial Institutions. “The biggest challenge that I face as the banking commissioner is the health of the community-banking system.”

Small community banks, according to Gonzales, play a significant role in small business lending, economic development, job creation and market stabilization because they employ what Gonzales called “relationship lending” techniques that utilize soft data and human relationships between banks and business owners.

“Small businesses are the fuel for the U.S. economy,” Gonzales said. “They represent approximately 99 percent of all employer firms in the US [and] employ half of all private-sector employees.”

In addition to small banks’ role in small business development, these financial institutions also play a crucial role in extending personal credit to small town and rural communities members.

“The nation’s largest banks certainly have a tremendous presence in urban areas,” Gonzales said. “Community banks have the presence in small towns and rural communities all throughout the state and the country.”

According to Gonzales, the way to find balance between regulation and growth is by tailor-suiting community bank examinations and not imposing a “one size fits all” form of bank oversight.

“Communities banks serving the needs of Murfreesboro should not be subject to all the rules and requirements that JP Morgan is,” Gonzales said.

Gonzales has been the department’s commissioner since 2005. According to Gonzales, the primary goal within the department is to get state banks in a prime position to serve Tennessee.

Gonzales said federal policy that mainly addresses “too big to fail” financial institutions has a negative trickle-down effect on small community banks.

“I think it’s critical that policy makers in Washington keep this balance that I’m talking about in mind as they add more regulation to the banking system,” Gonzales said. “It has a tremendous impact on our economy—on local economies— as well.”

Gonzales pointed to the issue of bank consolidation and the consolidation of their assets as a major concern for community financial institutions.

“The four biggest banks in the country—JP Morgan-Chase, Bank of America, Citi, Wells— each have over $1 trillion in assets,” Gonzales said. “Together they have over 40 percent of the assets in the banking system.”

In addition, he pointed to the size disparity between the big banks and small banks.

“The average big bank and the average community bank has grown from 12 times larger in [1985] to 64 times larger just two years ago,” Gonzales said. “What I’m concerned about is that legislation and regulation created in Washington is helping to drive this consolidation in the industry.”

Tennessee’s State Banking Act promotes and fosters growth and development in the state’s local banking industry and offers protection to consumers, Gonzales said, a clear sign that the State finds value in its community banking system.

“By law, we are required to find a balance in regulation,” Gonzales said. “The Banking Act is a clear recognition that community banks are very important to Tennessee’s economy.”

In addition to Gonzales’s keynote address, David Penn, director of MTSU’s Business and Economic Research Center, presented the Economic Outlook for the city of Nashville and the state of Tennessee.

Tennessee’s unemployment rate has decreased from last year’s 9.4 percent to 8.5 percent. However, Penn said, this figure doesn’t include under-employed Tennesseans, which increases the rate to 13.8 percent total unemployed and under-employed people.

Penn said that although there are positive signs in Tennessee economic growth such as leveled or increased housing prices and increased sales tax collection, overall Tennessee’s economy is slowing. He added that the Euro Zone crisis and the “fiscal cliff”— an uncertainty in future fiscal policy and public budget cutbacks—contributed to the difficulties.

According to Teena Young, secretary for the Dean of the School of Business, approximately 160 community members registered for the event. Among those registered were 10 MTSU students, and 25 faculty and staff members, including Jim Burton, dean of the College of Business. The conference was held from 8:15 a.m. to 1:15 p.m. at Embassy Suites Hotel and Conference Center in Murfreesboro.

The conference, now in its third year, was cosponsored by the Jennings A. Jones Chair of Excellence in Free Enterprise, MTSU Business and Economic Research Center and Weatherford Chair of Finance.

For more information on the Business and Economic Research Center and its new and continuing project, visit www.mtsu.edu/berc