The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- Job creation remains the No. 1 economic and political issue of today despite the better-than-expected April employment data. No amount of fiscal stimulus and excess reserve creation appears to be stimulating significant job creation. And most politicians are baffled as to why.
In 1999, with the repeal of the Glass-Steagall Act, the megabanks were able to cross the investment banking line, which had been forbidden to them since the 1930s. And, from that time forward, their capital ratios fell, because the natural inclination of an investment banker is to use leverage.
Unlike the megabanks, community banks have no such access to capital. Like the megabanks, community banks suffered loan quality issues, and many of these institutions now have "impaired" capital. That means that their capital levels are below regulatory standards. Many community institutions are under regulatory orders, and, in almost every case, those orders require additional capital. Until they raise such capital, their capital ratios do not permit them to lend new funds. Furthermore, the regulators are generally heavy handed, and the capital that may be available is hesitant to enter for fear (borne out by many anecdotes) that the regulators will not quickly release the institution from its regulatory shackles. (Ask any community bank CEO with a regulatory order, "Who runs the bank?" He or she will tell you, "the regulators.")
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