05/18/19 WHY BIG BANKS MAY MEAN BIG PROBLEMS

WHY BIG BANKS MAY MEAN BIG PROBLEMS

As an investment banker for small, closely held companies in New England, I find that bank loans are more difficult to arrange than in prior years, due to the concentration of assets among the larger banks (''Trillion dollar banks,'' Cover Story, Apr. 27). If a Massachusetts company is seeking a $3 million to $5 million loan package to recapitalize and update its machinery and building, this amount isn't large enough to interest any of the three largest banks that control some 48% of the banking assets in the state.
Megabanks are not likely to be ready sources of financing for small business, despite pre-merger announcements that megabillions in loans will be reserved for them. Indeed, any notion that the emergence of megabanks will benefit small businesses seems to be an illusion.
Michael G. Moberly
Farmington, Conn.

Your two pieces on megabanks (''Citigroup: Really big may not be better,'' Editorials, Apr. 20, and ''Big banks, big problems'' Editorials, Apr. 27) highlight a critical public policy concern: Who will pay for Travelers Group Inc.'s other umbrella? I am referring to the implicit federal safety net shielding giant financial companies, such as the new Citigroup, that are ''too big to fail.''
This government umbrella always protected Citicorp and other behemoth banks with federally insured deposits. This same federal umbrella, however, has not been used to bail out failed insurance and securities firms. With this new merger, these and other nonbank firms now are in the same corporate group with Citicorp. This results in an increased taxpayer exposure, potentially to all of the $700 billion in assets. In the worst-case scenario, the government will have no choice but to bail out the largest financial company in the nation (and the world).
It is not unreasonable to suggest that Travelers should pay something in return for this federal subsidy. At a minimum, they, like their Citicorp partner, should be covered by the Community Reinvestment Act (CRA), which encourages banks to invest in low- and moderate-income neighborhoods. Another, more market-based solution is requiring Citigroup and the 20 or so other [large] banks to pay a separate insurance premium to the Treasury, similar to the deposit insurance premium banks now pay to the Federal Insurance Deposit Corp. How could Travelers, which wrote the first auto insurance policy in 1897, argue against the concept of paying for coverage that ensures eternal solvency? The worst alternative is to do nothing.
Kenneth H. Thomas
Wharton School
Philadelphia