Not long ago, I read a commentary written by the CEO of a regional bank that excoriated big banks. The grievances weren’t new or surprising, but I recognized the bank as a client of JPMorgan Chase, the company I lead. I did some digging and found that our firms have a relationship that goes back many years and spans a broad range of essential services.
There is a powerful temptation in the current economic climate to frame issues as simple stories of big versus small or Main Street versus Wall Street. But the financial services industry does not conform to simple narratives. It is a complex ecosystem, because there is no other way to effectively serve America’s vast array of customers and clients. A healthy banking system depends on institutions of all sizes to drive innovation, build and support the financial infrastructure, and provide the essential services that allow the US economy to thrive.
In this system, regional and smaller community banks play an indispensable role. They sit close to the communities they serve; their highest-ranking corporate officers live in the same neighborhoods as their clients. They are able to forge deep and long-standing relationships and bring a keen knowledge of the local economy and culture. They frequently are able to provide high-touch and specialized banking services.
Large banks such as JPMorgan Chase also have a strong local presence. We are proud to have branches and offices across the country and to have the privilege of being woven into communities large and small. But we respect the fact that for some customers, there is no substitute for a locally based bank and that in some markets, a locally based lender is the best fit for the needs of the community.
Still, regional and community banks depend on large banks to make their service offerings possible. Large banks like JPMorgan Chase and some of our major competitors offer vital correspondent banking services for smaller institutions. These services include distributing and collecting physical cash, processing checks and clearing international payments.
JPMorgan Chase alone provides such services to 339 small banks and 10 corporate credit unions. Last year, we provided these institutions with $4.7 billion in intraday credit to facilitate cash-management activities and processed $7.6 trillion in payments/receivables.
Large banks also enable community banks to provide traditional mortgages by purchasing the mortgages smaller banks originate, selling the loans to the agencies (such as Fannie Mae) or capital markets and continuing to service the borrower. In 2015, JPMorgan Chase purchased $10.4 billion in such residential loans from 165 banks nationwide.
Large banks also provide critical investment services to community banks. These services include helping them get access to debt and equity capital, supporting them through strategic combinations, enabling them to manage their securities portfolios, providing valuable risk-management tools (such as interest-rate swaps and foreign exchange), and creating syndicated credit facilities that smaller banks’ clients can participate in.
The financial services industry, in short, is a story of interdependence among banks of all sizes. Yes, all banks compete. But in banking, your competitor can also be your customer.
Large banks ultimately would be diminished if regional and community banks were weakened and, just as surely, those smaller institutions would lose out if America’s large banks were hobbled. The US needs a banking system that serves the needs of all Americans, from customers getting their first mortgage, to farmers and small business owners, to the largest multinationals.
The reality of interdependence should inform not just how banks act toward one another, but how the industry collectively operates in a heightened regulatory environment. The crisis of the past decade has taught us that mistakes by the largest banks can affect the broader financial system. But some regulations can affect the ability of smaller and regional banks to serve their customers and communities. I believe I can say, on behalf of most of the nation’s largest banks, including the one that I lead, that we are very supportive of the efforts by small and regional banks to work responsibly with their regulators and, if necessary, the Congress to address new rules and requirements.
America faces enough real challenges without inventing conflicts where none need exist. Banks of all sizes do themselves and their stakeholders better service by acknowledging the specific value different types of institutions offer so that all get on with the business of strengthening the economy, our communities and our country.
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