Short shrift for small banks

Maryland should do more for its financial institutions that invest in local communities

March 12, 2012|By Jason Judd

If our largest banks are the "one-percenters" of American capitalism, small business is our 99.

And, just as our largest corporations are ruling the roost in Washington, so too do they rule in Annapolis. In fact, Maryland's politics have become so lopsided over the last decade that support for Maryland's small businesses has degenerated into a mere talking point — "backbone of our economy," "the engine of economic growth," etc.

Here's Exhibit A. In spite of all the talk from big business groups about taxes and regulation in Maryland, the top issue for small businesses is lending. They need affordable and reliable credit to grow their businesses.

We know this anecdotally from the hundreds of conversations my organization, Maryland Business, has conducted around the state, and from the numbers — the latest Pepperdine University survey of small business puts access to credit at the top of the list.

You could fairly expect that the legislators singing hymns to Maryland's small business owners would get right on it. You would expect them to get behind Maryland's Lend Local Act, a bill in the current legislative session. HB571 and SB792 would put more of the state's deposits in the community banks that are lending to our small businesses.

And you'd be wrong.

The Maryland Bankers Association objects, and the hymns in Annapolis have stopped.

The banks' lobbyists object that the bill encourages the state to shift more of Maryland's public dollars to work in the community banks that are helping Maryland's economy recover.

Exactly.

We should stop rewarding giants like Bank of America with our public deposits. With Bank of America, Maryland's deposits are as likely to be invested in Wall Street trading desks, Brazilian steel mills or Chinese high-speed rail projects as in Maryland's small businesses.

In fact, Bank of America's lending here under the Small Business Administration's flagship lending program collapsed at the start of the financial crisis and never came back. The state's largest bank made 312 of these federally guaranteed loans in 2007. In 2010, it made two. And a February analysis of the bank's lending nationwide shows that its small business lending fell by more than 5 percent in 2011.

The bank has surely invested more in its pricey ad campaign touting its small business lending than it's put into affordable SBA lending here in Maryland.

We should free up Maryland's market and ensure that the community banks that are lending to small business can get the deposits they need to do more of it. This is critical to creating new jobs in Maryland.

A 2010 analysis from the nonpartisan Center for State Innovation demonstrates that every $10 million moved from large, out-of-state banks to our community banks will help create up to 11 new Maryland jobs. Moving $150 million in short-term deposits — a tiny percentage of Maryland's short-term funds — can help us create hundreds of new jobs in the next few years.

Other states are moving ahead of us. New York, Pennsylvania and Massachusetts have started to keep their public dollars closer to home, and the District of Columbia is also considering its own "lend local" legislation. In just 10 months, the Massachusetts Small Business Banking Partnership has put more than $160 million into the state's community banks.

Maryland's Lend Local Act has the support of community banks, the state's treasurer, the state's bank commissioner and Gov. Martin O'Malley, who recognizes the program's power to create new jobs. Perhaps most important, it has the support of small businesses around the state, from retailers in Baltimore's Federal Hill to Technology Corridor companies with dozens of employees.

But will it be enough in Annapolis' lopsided, big-business political culture?

Grass-roots organizations like Maryland Business don't make donations, host lobbyist dinners or organize fancy award banquets. That's how big business operates. Maryland's small businesses are instead counting on their elected leaders to stand with them in a political economy that tilts against them.

That's what brought more than 40 small business leaders together in Baltimore's Belvedere Square recently in support of the Lend Local Act.

They are pushing past the notion that small business is powerless in a politics dominated by big interests. They are hopeful that the last four years of collapse and painful recovery have taught our elected leaders which side they're on.

Jason Judd is the founder of Maryland Business, a new statewide small business advocacy group, and a consultant on state bank policy to D¿mos, a national public policy institute. His email is jasoncjudd@gmail.com.

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