Leveling the Playing Field

Recently, The New York Times published an article entitled “The Fattest or the Fittest?” The topic, which seems to be gaining increasing limelight in Washington, is the elimination of the significant benefits reaped by gargantuan banking institutions—like Bank of America and Wells Fargo—that are too powerful and interconnected to fail.

Big banks that are not allowed to fail receive implicit subsidies, especially in the form of lower borrowing costs, as a result of investor belief that taxpayers will rescue them. Senator Sherrod Brown, the Ohio Democrat who leads the Senate Banking subcommittee on financial institutions and consumer protection, has been strongly advocating that the government needs to stop placing these “megabanks” at an unfair advantage over their smaller competitors.

At US Capital Partners, we welcome a leveling of the playing field. What the big banks should do is provide more and better leverage for the small asset-based lending shops instead of completing with them for $1–3 million factoring lines, which these large banks don’t do well anyway. Nothing is more annoying than a gigantic bank recently bailed out by taxpayers competing in our small business lending space for a $500 thousand deal.

All too often, the big banks move into areas of lending in which they are simply not adept. They are able to put undue competitive pressure on smaller lenders, sometimes taking them out of business, largely through the unfair advantage they gain from an uneven playing field. In the words of Richard W. Fisher, the president of the Federal Reserve Bank of Dallas, the current regulatory ethic “coddles survival of the fattest rather than promoting survival of the fittest.”