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Bank Mergers Increases Need For Moral Flexibility

Source: NYT

Floyd Norris’ column asks: Do big bank mergers lead to more crime? And is that a reason to toughen antitrust enforcement? [NYT] [1]. His article is based on a study published in the Journal of Finance: Bank Mergers and Crime: The Real and Social Effects of Credit Market Competition [2]

The study uses micro-evidence that:

Neighborhoods that experience more bank mergers are subject to higher interest rates, diminished local construction, lower prices, an influx of poorer households, and higher property crime in subsequent years.

A First-Hand Appraisal Professional Testimonial

We can see this specifically within the appraisal profession. I have been talking about this for more than a decade. The wave of bank mergers has removed local oversight from the appraisal review function. In other words, appraisers that are morally flexible have been able to thrive because of this disconnect.

Large bank mergers generally result in a system of central controls and as a result, national vendors get appraisal contracts over locals. The irony here is that the national venders, known as appraisal management companies (AMC’s), track appraisers based on speed and whether they have a license, with a fee structure that is half the going rate.

Guess what happens? AMC appraisers can not afford to purchase reference materials and data. But it doesn’t really matter since they are only worried about turn times.

The pressure on reputable appraisal firms remains incredible.

If this is what happens in a fairly cut and dry scenario, I can only imagine what happens in more complex financial transactions.