It might sound odd, but they have their reasons.
The bigger a bank gets, the more regulations it has to abide by.
And if it gets big enough, it’s labeled a SIFI (Systemically Important Financial Institution).
AKA → You are “too big to fail” and the government will take action to prevent the failure of your institution if a crisis occurs to prevent the entire economy from collapsing.
It’s great for protecting us from another 2008 situation,
But not so great for small banks looking to grow.
The first benchmark they have to look out for is $1B.
Cross it, and you have to abide by new regulations like more regulatory oversight.
That means you’ll have to hire more people to make sure you follow every rule.
You build a bigger 2nd and 3rd line of defense.
So what do these small banks do as they approach $1B??
Quite literally… Anything they can to avoid crossing it.
It’s almost funny to watch.
They stunt their own growth until they absolutely can’t anymore.
Then they put the proper safety measures in place.
Then continue growing.
It makes sense given the fixed costs that come with this growth.
But if you know it’s coming, and you know how to run a decent bank,
Just bite the bullet,
Invest in those 2nd and 3rd lines of defense early,
Then grow like crazy.
Margins might be tight for a little while,
But you’ll be glad you did it when you can be EXCITED about crossing $1B instead of SCARED.
—
???? Follow Brian on Linkedin: Brian Pillmore
Get PDF Report
