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I'm curious on how/why you think large banks are better than the local ones? I'm also further curious on how you think that the huge corporations are more meri

by taeric 3y ago

I'm curious on how/why you think large banks are better than the local ones? I'm also further curious on how you think that the huge corporations are more merit-based? My gut would be that they are about the same, all told. They will have the benefit of more applicants, but they have the downside of lower risk of failure.

opportune 3y ago
My experience with huge corporations is you don’t really need to “know a guy” to get hired a lot of the time - if you do, it’s a professional connection rather than a family-based one. Similarly you can often make it to the upper echelons at all the places I’ve worked without any kind of family connection - I won’t say “just by working hard” because I’m sure brownnosing and politics are involved, but not family politics. Where I’m from a lot of family businesses/businesses that end up becoming functionally family businesses basically only hire family into upper level positions, which often function more like sinecures. You can argue it’s their right, sure, but I think it’s bad for society. You see it all the time in real estate, local banking and financial services (esp. wealth management), law, logistics or other local blue collar businesses (even medicine - it turns out when you’re an influential local doctor it’s a lot easier to get your kid into the local medical school). That is not to say that family connections are always meritless but I think it’s a big negative of small “family owned businesses” in locking outsiders out of opportunities for social advancement. Regarding bigger banks being better - they can afford to hire really smart people whose work scales over all their customers. They have a much more diverse customer base which reduces risk. Local banks cannot do this as efficiently due to having less customers. I also personally don’t care about the human aspect of my bank at all - they provide financial products which are usually very comparable to those at other banks, and I prefer to do everything online by myself - so I see investments in that area as unnecessary and potentially wasteful (insofar as it impacts rates/terms/etc with poorer margins).
- paulddraper 3y ago
  My experience with huge corporations it that it's easier for low-merit individuals to hide, and the incentive for removing them is buried behind more layers of management.
  - opportune 3y ago
    That’s totally true, the pathologies are different. But they’re big enough this usually doesn’t impact the whole firm. With small businesses if the positon of Director is effectively a family-owned sinecure you may have no opportunity to ever reach that level even if they’re wildly incompetent.
  - taeric 3y ago
    Exactly. And is why I'd expect them to be roughly the same, all told.
- taeric 3y ago
  My experience with huge corporations is that "knowing a guy" is still remarkably effective at getting you in. A big downside is that they are also less incentivized to train up folks. Larger corporations seem to have decided that that can all be offloaded to "the market forces" such that they can just hire new folks that are more up on current techniques. I don't buy them being able to better scale over their customers. At face value, it seems more that they have more managed to get society to stop giving a shit about the smaller communities that have no choice but to bank with them.
- kipchak 3y ago
  I don't have any personal experience with the upper levels of a large company, but maybe the mechanisms at the top are similar but the scale of the organization is increased enough to result in a much higher ceiling for advancement? For example I'm wondering how much "know a guy" is required for being on the board of one of the big four banks.
e63f67dd-065b 3y ago
Banks are inherently a 'bigger the better' business. A bank serving a single town goes down with the town, so you diversify to the next town over. Diversifying means now your depositors are less correlated and you have more scale for things like apps and online stores, and you have much more predictable losses on your credit portfolio. Bigger banks are more able to adapt to new technology (community banks have been the biggest lobbyists against most technological innovations in banking, and is part of why FedNow is taking so long to roll out). It's kind of like insurance: they can only exist because they offload some of their risk to bigger companies; the bigger you are the more efficient you become. I mentioned in another comment about how most small banks closely tied to the local business environment and especially CRE markets. The difference between a single CRE developer being 5% of your portfolio when you're one tiny bank and 0.5% when you're a slightly larger bank is massive. You scale that up even more and banking gets more reliable and easier to manage the larger the banks are. The fewer banks there are, the easier it is to provide oversight and regulate them. You have fewer institutions to coordinate when trying to push big changes, and what fewer institutions do exist are more resilient and able to absorb larger losses.
- taeric 3y ago
  I don't buy it, right off. A bank serving a single town does go down with the town. But the big banks don't do anything to help the town stay up, as it were. That is, sure, the bank disappears if the town does. But the question is if local banks help towns not disappear? There are tangible goods for having value pumped locally into the place that has it. Versus the larger banks that have no reason to invest in smaller towns.
  - throw9away6 3y ago
    Local banks can help towns not disappear if they are allowed to actually bank. They could in theory loan to the local plumber to start his shop, the auto body shop for a paint hanger etc. The problem is that all those loans are risky and risky in a correlated way such that if a local anchor company goes up so does the rest of the lending portfolio. Over a long enough period of time a local adverse event will happen and the bank will get hit by a liquidity crisis and get shut down. The too big to fail banks are also prone to this but in theory because they are regionally diversified less so. Still without government guarantees about half or more would have failed in 2008/2010 time period. Still with government guarantees these banks have access to much cheaper capital and more liquidity when a crisis happens to they can out compete smaller banks.

by taeric 3y ago

opportune 3y ago

My experience with huge corporations is you don’t really need to “know a guy” to get hired a lot of the time - if you do, it’s a professional connection rather than a family-based one. Similarly you can often make it to the upper echelons at all the places I’ve worked without any kind of family connection - I won’t say “just by working hard” because I’m sure brownnosing and politics are involved, but not family politics. Where I’m from a lot of family businesses/businesses that end up becoming functionally family businesses basically only hire family into upper level positions, which often function more like sinecures. You can argue it’s their right, sure, but I think it’s bad for society. You see it all the time in real estate, local banking and financial services (esp. wealth management), law, logistics or other local blue collar businesses (even medicine - it turns out when you’re an influential local doctor it’s a lot easier to get your kid into the local medical school). That is not to say that family connections are always meritless but I think it’s a big negative of small “family owned businesses” in locking outsiders out of opportunities for social advancement. Regarding bigger banks being better - they can afford to hire really smart people whose work scales over all their customers. They have a much more diverse customer base which reduces risk. Local banks cannot do this as efficiently due to having less customers. I also personally don’t care about the human aspect of my bank at all - they provide financial products which are usually very comparable to those at other banks, and I prefer to do everything online by myself - so I see investments in that area as unnecessary and potentially wasteful (insofar as it impacts rates/terms/etc with poorer margins).

paulddraper 3y ago
My experience with huge corporations it that it's easier for low-merit individuals to hide, and the incentive for removing them is buried behind more layers of management.
- opportune 3y ago
  That’s totally true, the pathologies are different. But they’re big enough this usually doesn’t impact the whole firm. With small businesses if the positon of Director is effectively a family-owned sinecure you may have no opportunity to ever reach that level even if they’re wildly incompetent.
- taeric 3y ago
  Exactly. And is why I'd expect them to be roughly the same, all told.
taeric 3y ago
My experience with huge corporations is that "knowing a guy" is still remarkably effective at getting you in. A big downside is that they are also less incentivized to train up folks. Larger corporations seem to have decided that that can all be offloaded to "the market forces" such that they can just hire new folks that are more up on current techniques. I don't buy them being able to better scale over their customers. At face value, it seems more that they have more managed to get society to stop giving a shit about the smaller communities that have no choice but to bank with them.
kipchak 3y ago
I don't have any personal experience with the upper levels of a large company, but maybe the mechanisms at the top are similar but the scale of the organization is increased enough to result in a much higher ceiling for advancement? For example I'm wondering how much "know a guy" is required for being on the board of one of the big four banks.

e63f67dd-065b 3y ago

Banks are inherently a 'bigger the better' business. A bank serving a single town goes down with the town, so you diversify to the next town over. Diversifying means now your depositors are less correlated and you have more scale for things like apps and online stores, and you have much more predictable losses on your credit portfolio. Bigger banks are more able to adapt to new technology (community banks have been the biggest lobbyists against most technological innovations in banking, and is part of why FedNow is taking so long to roll out). It's kind of like insurance: they can only exist because they offload some of their risk to bigger companies; the bigger you are the more efficient you become. I mentioned in another comment about how most small banks closely tied to the local business environment and especially CRE markets. The difference between a single CRE developer being 5% of your portfolio when you're one tiny bank and 0.5% when you're a slightly larger bank is massive. You scale that up even more and banking gets more reliable and easier to manage the larger the banks are. The fewer banks there are, the easier it is to provide oversight and regulate them. You have fewer institutions to coordinate when trying to push big changes, and what fewer institutions do exist are more resilient and able to absorb larger losses.

taeric 3y ago
I don't buy it, right off. A bank serving a single town does go down with the town. But the big banks don't do anything to help the town stay up, as it were. That is, sure, the bank disappears if the town does. But the question is if local banks help towns not disappear? There are tangible goods for having value pumped locally into the place that has it. Versus the larger banks that have no reason to invest in smaller towns.
- throw9away6 3y ago
  Local banks can help towns not disappear if they are allowed to actually bank. They could in theory loan to the local plumber to start his shop, the auto body shop for a paint hanger etc. The problem is that all those loans are risky and risky in a correlated way such that if a local anchor company goes up so does the rest of the lending portfolio. Over a long enough period of time a local adverse event will happen and the bank will get hit by a liquidity crisis and get shut down. The too big to fail banks are also prone to this but in theory because they are regionally diversified less so. Still without government guarantees about half or more would have failed in 2008/2010 time period. Still with government guarantees these banks have access to much cheaper capital and more liquidity when a crisis happens to they can out compete smaller banks.