Harvard Business professor Bill George warns that blanket vilification of all banks and bankers is leading to excessive bank regulation even for good bankers which did nothing wrong.
This could drastically reduce the U.S. economy’s ability to grow new companies and fund ongoing ones, right at a time when the country needs it most.
DealBook: The danger is that we will punish healthy banks for the sins of failed banks. Most bankers have behaved responsibly throughout the crisis. This is the wrong time to tie their hands. Instead, we need these banks to get back to their chartered roles: to provide financial resources to consumers and businesses — large and small, new and old.
Commercial and investment banks are the backbone of American commerce. They provide the capital for business expansion and new company formation. In the past 20 years, 70 per cent of all jobs have been created by start-up companies and small businesses. But the lack of available financing in the past year has severely crimped the ability of small businesses to grow their business and to add jobs. New company start-ups are finding it extremely difficult to get any financing.
Continuing to vilify all bankers will create a vicious cycle: It will fan the flames leading to excessive regulations. This will cause banks to pull back and lend less, thereby crimping expansion by small business and shutting down start-ups. This will intensify the jobs crisis and throw the United States into a double-dip recession.
In a follow up piece today he responds to criticism of his first, particularly confronting the common attack on banks for taking advantage of government support.
Dealbook: “Banks like Goldman and JPMorgan Chase did not need bailout money but benefited from it and are now unfairly turned a profit in the economic downturn.”
For sake of context, it’s important to remember that Goldman Sachs was one of nine major banking institutions to receive government bailout money and was heavily encouraged to do so by then-Treasury Secretary Henry M. Paulson Jr. to show a united front among the American banking leaders. Goldman agreed.
But banks like Goldman Sachs and JPMorgan are excelling because they was better positioned when the financial crisis hit — having spent the previous year building liquidity and avoiding toxic subprime exposure — and they are better positioned now to benefit from the market. Goldman and JPMorgan prepared responsibly and now continue to make sound investments and practice measured risk-taking, while many other banks are forced by their balance sheets to take a more defensive posture. That is why they and other TARP recipients like U.S. Bancorp and Morgan Stanley posted substantial earnings in the third quarter.
Even for those who disagree, his two articles are well worth a read.