Do climate risks spell doom for community banks?

“There are two main ways to increase concentration in the banking sector”, wrote Twitter (X?) user Modest Proposal in March last year: 

1. Let big banks acquire troubled banks 

2. Don’t let big banks acquire troubled banks

This smarty-pants aphorism was posted in the midst of the Silicon Valley Bank crisis, after the Federal Deposit Insurance Corporation (FDIC) failed to find a buyer for the embattled lender among Wall Street’s biggest beasts. 

A rescue bid by one of the US global systemically important banks (G-SIBs) would have stopped the mini-banking crisis cold, but at the cost of increasing the concentration of financial assets among the country’s largest lenders – something regulators aren’t too keen on given the whole “too-big-to-fail”-ness of it all.  

Ironically enough, though, the FDIC’s failure to foist Silicon Valley Bank onto a G-SIB prompted depositors to yank their funds from smaller banks all across the country and pile them into the too-big-to-fail firms, chief among them JP Morgan.  The lesson?  When there’s trouble in the banking sector, the strong get stronger and “and the weak suffer what they must.”

I’ll add a third point to Modest Proposal’s list:

3. Let climate risks run amok.