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Much of the depression in design and construction since 2007 can be traced to a sudden retentiveness by small and medium-sized community banks around commercial real estate and construction lending. Gretchen Morgenson has a good explanation in this past Sunday’s New York Times (subscription required) that begins to tell why many smaller banks are still holding on to money rather than lending, stimulating smaller businesses, and in turn helping to support hiring (not least in construction). Morgenson’s reading of a recent talk given by a former Federal Reserve governor, Kevin Warsh, says that the smaller banks can’t dodge the new federal reporting requirements quite as deftly as can the larger banks that are considered too big to fail (still). The federal Dodd-Frank law of 2010 that was supposed to reform Wall Street “has favored large global banks and disfavored small and medium-sized banks,” he said. “So I’m not surprised that real economic and job growth that should come from these enterprises is still lacking. Our failure to have a dynamic competitive banking system is a partial explanation for the weakness we are seeing.” Morgenson adds: “Granted, Mr. Warsh is far outnumbered by those arguing for the status quo and the continued hegemony of big banks.”
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