Big Banks, Little Banks

Glenn Reynolds:

THE ADVANTAGES OF SMALL BANKS. ”According to FDIC data, the failure rate among big banks (those with assets of $1 billion or more) is seven times greater than among small banks. Moreover, banks with less than $1 billion in assets—what are typically called community banks—are outperforming larger banks on most key measures, such as return on assets, charge-offs for bad loans, and net profit margin.”

As Jerry Pournelle observed a while back: ”One does wonder whether the efficiency of having a few very large financial institutions outweighs the cost of the disasters that ensue when a Black Swan appears; whether it might not be better to have, instead of one institution so large that it justifies paying its top executives $100 million a year, one hundred such institutions paying executives $1 million a year? Certainly this would be less efficient. The highs would not be as high. But would the lows be as low? Why must there be institutions so large that they cannot be permitted to fail, and must be rescued by the common purse?”