In effect, more prudent and better-managed banks have been denied the market share that would have been theirs if mismanaged big banks had been allowed to go out of business. This strikes me as counter to the very essence of competition that is the hallmark of American capitalism: Prudently managed banks are being victimized by publicly subsidized competition from less-prudent institutions. A student of existentialism is tempted to recall Nietzsche’s lament that, “He who is punished is never he who performed the deed.”12 An acerbic devotee of H.L. Mencken might be given to recite his dictum that while “injustice is relatively easy to bear; what stings is justice.”13 I do not doubt for a New York minute that the savvy big players who “performed the deed” did so  11  See “Oil and Gas CEO Pay Beats Other Industries,” by Dana Mattioli, Wall Street Journal, May 12, 2011. Also see http://graphicsweb.wsj.com/php/CEOPAY11.html. 12  See Daybreak: Thoughts on the Prejudices of Morality, by Friedrich Nietzsche, Cambridge, U.K.: Cambridge University Press, 1997. 13  See Prejudices: Third Series, by H.L. Mencken, New York: Alfred A. Knopf, 1922. 4  BIS central bankers’ speeches  with confidence they would be protected by the authorities who might find “justice” difficult to impose. In solving the crisis at hand during the Panic, it appears that the most imprudent of lenders and investors were protected from the consequences of their decisions; the sinners were rescued and the virtuous penalized.
My concerns over regulation-induced economies of scale and the implications for industry consolidation apply to all the size classes of banks, given the extensive list of new or enhanced requirements created by Dodd–Frank and their associated compliance costs. As it affects community banking, my concerns are tempered somewhat, though not completely alleviated, by the small-bank exceptions that have been granted to several of the new law’s more costly requirements. 14  See “That Which is Seen, and That Which Is Not Seen,” in Essays on Political Economy, by M. Frédéric Bastiat, London: Provost & Co., 1872. BIS central bankers’ speeches  5  Unfortunately, the same cannot yet be said for the case of regional banks. The act indicates that all banking organizations with more than $ billion in assets should be subject to enhanced supervision. Some of the related regulatory proposals have already been distributed for comment. Still other proposals for new, stricter “enhanced supervision” rules for these banks will be unveiled soon. Yet, few really believe a $ billion bank poses a systemic threat to our $ trillion banking system. Nor is a $ billion bank qualitatively similar along risk dimensions to the very largest ones that exceed $ trillion in size. The top 10 banking organizations have a cutoff point of $ billion. I posit that this group should constitute the primary target for enhanced supervision. Interestingly, despite its large share of industry assets, this group holds only about 20 percent of the small-business loans on bank books.