Some Banks Are Too Small to Succeed

At a time when there’s much focus on what divides us, it’s easy to forget that most people agree on some things. Chief among these is our hope for a strong economy that produces opportunity. And while those on the left and right have different ideas about how to get there, virtually everyone agrees that a vibrant pipeline of new businesses creating new jobs and innovation is at the core of it.

But what’s at the core of new business creation? Entrepreneurs. You know, those stubborn dreamers who can’t help but imagine how the world should be and then try to build businesses that move in that direction. Yet even though entrepreneurs can be found throughout the U.S., the capital they need for new businesses has become increasingly concentrated in a few large geographic markets. A 2017 study by the Economic Innovation Group found that the “extreme concentration of these vital sources of capital into a few hubs means much of the country’s entrepreneurial potential remains latent in underserved and overlooked regional ecosystems.”

Historically, community banks—those with less than $10 billion in assets—have been the primary source of lending to new businesses in rural communities. In bankrolling rural entrepreneurs, community banks possessed a key advantage: They knew the character of their borrowers. This personal relationship permitted budding entrepreneurs in areas largely outside the venture-capital ecosystem to gain access to the capital they needed to open a beauty salon, a restaurant or a plumbing business.

Unfortunately, the crush of regulations that followed the 2008 financial crisis has required community banks to pull back from character-based loans. A 2015 Harvard working paper found that since 2010, when regulations increased on these institutions, community-bank lending to small businesses has rapidly declined. Rather than hire loan officers, community banks have been forced to hire compliance officers charged with applying regulatory rules, originally developed for money-center banks, to small institutions. As one small lender told The Wall Street Journal, “When they created ‘too big to fail,’ they also created ‘too small to succeed.’ ”

The reduction in character-based lending by community banks doesn’t just mean fewer Waffle House franchises and beauty salons employing people in small-town America. Because of the internet, business location is less important than ever. In other words, an entrepreneur in rural Georgia who might have previously opened a new retail store, today might start the next . But she could only start that disruptive business with access to capital.

Solving this problem will require a combination of approaches, including legislative initiatives like the Investing in Opportunity Act’s plan to promote investment in distressed communities through tax incentives. But cleaning up the regulatory mess is an obvious place to start. Community banks should be governed by different regulations, enforced by different regulators, than those at money-center financial institutions, ones who understand the unique risks small institutions face.

With less regulation, community banks could devote a portion of their capital to small-business lending that generates jobs, innovation and growth. There’s an entire group of potential entrepreneurs whose ideas have yet to be unlocked. Who knows how far-reaching their innovation might be, if given the chance?

Mr. Ricketts is the founder of TD Ameritrade and now pursues various entrepreneurial and philanthropic projects, including Entrepreneurs Create Jobs.

(Read the full Op-ed by Joe Ricketts in THE WALL STREET JOURNAL)

The Heartbreaking Opioid Crisis

There are two crises occurring in America that demand our attention.

The first involves substance abuse. In 2015, 27 million people reported that they used illegal drugs or abused prescription drugs. More Americans are dying per year from drug overdoses — over 60,000 people last year — than from traffic accidents or gunshots. The biggest killer? Opioids. One survey shows that millions of Americans are using opioids for nonmedical reasons each month. So many people are using and abusing these pain killers that a White House panel recently labeled it a “national public health emergency.”

The second involves a massive glut of prime working-age Americans — those who are 25 to 54 years old — who have dropped out of the workforce. There are 7 million prime age men alone no longer looking for work. America has the lowest workforce participation rate for prime age men of any developed country besides Italy. The situation is grim for women too. Current work rates for prime age women have fallen back to where they were a generation ago in the late 1980s.

Tragically, these two crises are interrelated.

Almost half of the 7 million prime working-age men who have dropped out of the workforce report that they take pain medication. Among those who collect disability benefits, rates are much higher.

You might be asking yourself: How is it that people who are unemployed can pay for pain killers?

The answer is that you, me and our neighbors are bankrolling them with our tax dollars.

Here is how it works, as described by Sam Quinones in his book Dreamland: The True Tale of America’s Opiate Epidemic:

[The Medicaid card] pays for medicine—whatever pills a doctor deems that the insured patient needs. Among those who receive Medicaid cards are people on state welfare or on a federal disability program known as SSI. . . . If you could get a prescription from a willing doctor…Medicaid health-insurance cards paid for that prescription every month. For a three-dollar Medicaid co-pay, therefore, addicts got pills priced at thousands of dollars, with the difference paid for by U.S. and state taxpayers. A user could turn around and sell those pills, obtained for that three-dollar co-pay, for as much as ten thousand dollars on the street.

So, we have highly addictive pain killers, millions of Americans — many of whom are out of work — who use and abuse them, and we are subsidizing their addiction.

The tragedy of substance abuse has a series of terrible effects.

First is the heartbreaking devastation that drug addiction wreaks on individuals and their families. The unbearable suffering of our fellow Americans cannot be measured. In a time in which family breakdown has already grown to chronic levels, drug addiction simply adds to the strains this places on families and communities. It is a societal disaster.

Second is the macro impact that drug addiction has in terms of our economic dynamism. Simply put, drug addiction kills our drive and entrepreneurial spirit. Economists argue that the opioid crisis is reducing the number of people looking for jobs. There are all sorts of negative consequences to leaving the workforce for individuals, their families and communities. Among those who are employed, some businesses are reporting decreased productivity due to opioid usage or family problems created by relatives who use.

One study suggests that unemployment positively correlates with opioid deaths and overdoses – that is, higher unemployment rates equal more opioid-related tragedies. Could it be then that the employment picture is not as rosy as we think? Remember, the unemployment rate we hear in the news does not count the millions of people who are no longer looking for work. If the last economic crisis resulted in hundreds of thousands or even millions of people who turned to pain killers and are no longer seeking out work, today’s lower unemployment rates years later may be masking a drug-related crisis.

Morally, the opiate crisis is a blight on our nation’s soul.

To solve this crisis will require major efforts on prevention and treatment that span from caring and generous everyday Americans, to churches and other spiritual institutions, to doctors, and policymakers.

The stakes are too great not to do everything we can to cure this epidemic.

Americans should demand nothing less.

The Single-Parent Household Epidemic

The social science experts tell us there are three simple rules to live by to reach the middle class: 1) Graduate at a minimum from high school. 2) Get a full-time job. 3) Wait until you are at least 21 to get married and have kids.

This last rule deserves your attention because parents are increasingly breaking it, tragically setting their children up to fail.

Out of wedlock birth rates are spiraling out of control. To show you just how much the country has changed during my lifetime, in 1965 the birth rate for unmarried women was under 8%. By 2015, the rate had risen to over 40%.

The children of out of wedlock births are frequently raised in poor, single-parent households, which puts them at a major disadvantage in life. We are talking about millions of kids being negatively impacted here. 31% of children today are not living in two-parent households, most of whom are being raised by single mothers. The poverty rate for single-mother families in 2016 was over 35%, five times the rate of married-couple families.

What happens to those born out of wedlock and raised by single mothers? Simply put, a vicious cycle of generational poverty where the American Dream gets further and further out of reach.

The research shows that those born out of wedlock are at a greatly increased risk of health, developmental, emotional and behavioral issues at all stages of life.

These issues contribute to poorer school performance, increased odds of drug and alcohol usage and a greater propensity to engage in violent or criminal behavior.

The end result is that it is very hard for such children to follow the three simple rules to enter the middle class – they get stuck in the same trap as their parents.

Consider the plight of kids born out of wedlock:

  • The odds of dropping out of high school rather than graduating increase.

  • It may be harder to attain a job — even if graduating from high school — if such individuals made poor grades, had substance abuse issues and/or a criminal record.

  • As adults, such individuals may be deemed less desirable or uncommitted partners, due to lack of employment, or any of the other issues mentioned; therefore, it becomes more likely that they too will have children without getting married.

In the end then, the next generation will have to deal with the same problems over again.

The proof is in the pudding: Children living in single-parent homes are 50 percent more likely to experience poverty as adults relative to children from intact married homes.

The importance of the nuclear family just cannot be emphasized enough.

One thing I have yet to mention is that if you are a struggling single mother or otherwise finding it difficult to make ends meet, you are likely to turn to welfare programs for support.

There is a cost to these benefits. Dependency on the state hurts personal growth by making one dependent, and often saps individuals of their morale and dignity.

FDR put it best in his 1935 State of the Union Address during the Great Depression – an address it is hard to imagine any prominent Democrat delivering today:

Continued dependence upon relief induces a spiritual disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.

This is why the “workfare” reform passed in the ‘90s – and gutted during the Obama years – which tied government assistance to employment, was so positive.

It might shock you to know that our government actually perpetuates the vicious cycle I have described by incentivizing the formation of single-parent households through the way it structures benefit programs.

Did you know that there are marriage penalties built into means-tested welfare programs, from food stamps and public housing, to day care and Temporary Assistance for Needy Families?

As one study explains it:

The current welfare system may be conceptualized best as a system which offers each single mother … a “paycheck.”… She will continue to receive her “paycheck” as long as she fulfills two conditions: (1) she must not work; and (2) she must not marry an employed male…. [Welfare] has converted the low-income working husband from a necessary breadwinner into a net financial handicap. It has transformed marriage from a legal institution designed to protect and nurture children into an institution that financially penalizes nearly all low-income parents who enter into it. [i]

It is simply immoral that our government would condemn future generations to hardship and poverty through these programs.

It is an American Nightmare to think that every day children are being born with the odds stacked against them.

If we want to fix this issue as a society, we need to rethink our priorities.

We need to change our culture to one that emphasizes the nuclear family, and responsible parenting.

We need to get government out of the business of discouraging nuclear family formation.

The American Dream must be in reach for every child.


[i] See The Heritage Foundation’s study “Why Expanding Welfare Will Not Help the Poor.”

Celebrating America’s Spirit of Generosity

Generosity has always been an essential part of what it means to be an American.

From banking billionaires to barkeeps, we have viewed material success as a means to do good for our families and communities, rather than an end.

Thanks to democratic capitalism — where businesses go belly-up if they don’t create goods and services that people want at a price they can afford, and jobs that fulfill and enrich — the process of creating that wealth does tremendous good by itself.

Too often we ignore the wonder of this free enterprise system.

It is this system that enabled Americans to give an estimated $390bn to U.S. charities in 2016. To put that number in perspective, last year our country gave more money to philanthropic causes than the entire gross domestic product of Austria. It goes without saying that we are the most charitable people in the world.

A large portion of this giving was and is funded directly by wealthy individuals and indirectly by institutions they have founded and supported. According to the Almanac of American Philanthropy, the so-called “one percent” make more than one-third of all donations. The majority of the largest donors in the world are based in the Americas. Of these donors, almost three-quarters are, largely self-made, Americans; they each donate around $30 million over their lives.

Our entrepreneurial spirit goes hand-in-hand with our desire to help others. Rich and poor alike believe this, as American households give several thousand dollars to charity each year on average.

We are following in the footsteps of a long line of Americans.

When he wasn’t leading our nation as a Founding Father and statesman, inventing items like lightning rods and bifocals, or publishing newspapers, Benjamin Franklin used his success to build Philadelphia’s civil society through developing a number of critical institutions. These include among others: The nation’s first public library; Pennsylvania’s first volunteer fire brigade; the Academy of Philadelphia, now known as the University of Pennsylvania; and the nation’s first hospital, which focused on serving the poor and sick.

The great 19th century industrialist Andrew Carnegie was equally ambitious. Among other things, he: Created 2,811 lending libraries worldwide; founded one of the world’s leading research universities in the Carnegie Technical Schools, now known as Carnegie Mellon University; underwrote one of the nation’s first and still largest grantmaking foundations in the Carnegie Corporation; and established numerous other charitable organizations. Peers like John D. Rockefeller and J.P. Morgan picked up his mantle.

Today, several American billionaires like Bill Gates have pledged to give away half of their wealth to philanthropic causes. They are joined by many business successes, from Silicon Valley tech titans to energy tycoons, who help fund projects in areas like education, health and culture.

Recently we were reminded of the generosity of America’s business community, which mobilized to donate millions of dollars to the recovery efforts in the wake of Hurricanes Harvey and Irma.

In spite of this record, in conversations with folks about causes near and dear to my heart like The Cloisters on the Platte and Opportunity Education, I have heard our philanthropic work described as “unusual.”

Why is there this perception that it is rare for those who have done well to support charitable causes?

Could it be because “the rich” are often depicted in popular culture as greedy, old, and sometimes overweight fat cats chomping on cigars? Is the corrupt and miserly “Old Man Potter” from It’s a Wonderful Life how Americans see our captains of industry?

If so, it is a real shame. We have always been a country that celebrates strivers and doers. We have never sought to pull people down for success, but to lift others up and open opportunities so that they too can achieve it. Envy is not in our DNA. Ambition is.

Speaking for myself, one way of expressing my appreciation for the opportunities this nation has provided has been by using the wealth our enterprises have created to advance worthy causes.

The purpose is not to put names on buildings, but to support initiatives in areas like civil society and education that will allow us to continue to thrive as a vibrant and dynamic country for decades to come.

While there are certainly greedy wealthy people just as there are greedy non-wealthy people, in my life, I have found that almost all Americans feel the same way I do about being generous with their time and money.

We are generous because we are thankful, and because we wish to see American remain the freest, most prosperous land on Earth for our children and grandchildren.

This spirit of generosity should unite us all. It is one of the many things that makes us an exceptional nation.