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EDITORIAL: Bank? What’s a bank?

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TELL SOMEBODY too young to buy a beer that you read a newspaper, that person might wonder what you mean. He or she will thumb “n-e-w-s-p-a-p-e-r” into a mobile device and give you a look that says: Why would you do that?

The same is true of big box stores like Walmart that hollowed out local retailing and now struggle to keep pace with online shopping. And banking. What’s a bank for?

That last one will hit home if Key Bank’s plan to purchase First Niagara is approved by the boards of the two banks next month and the Federal Reserve, the agency that regulates banks, signs off on the deal. Both banks have multiple branches around the county. Some people will lose their jobs; some branches may be closed or sold to other banks.

The boards of the Key and First Niagara will probably approve the takeover by Key. Otherwise, why would the banks’ management announced it. The Federal Reserve’s merger standards have become a little tougher since the 2008 Wall Street collapse that led to the last recession, but it has not yet signaled any red flags. The notable opposition to the proposal comes from New York’s senior U.S. senator, Charles Schumer (D), the ranking member of Senate Banking Committee, and from Governor Andrew Cuomo.

Disclosure is needed here: The Columbia Paper does business with First Niagara.

If Key, a Cincinnati company, swallows First Niagara, headquartered in Buffalo, the combined bank will have around $135 billion in assets, making it the 13th largest commercial bank in the country. That sounds like a big deal and it will be for laid-off workers and people deprived of local banking services. But as Forbes magazine reported  in 2014, almost half of the nation’s banking assets are controlled by the top five banks. So Key will still be a bit player by comparison, as it competes for a share of the remaining half of a $15-trillion pie.

Sen. Schumer and Gov. Cuomo both see the loss of jobs as a flaws in the Key-First Niagara deal. But oddly, the rationale used by the governor appears to undercut his own case. The Times Union reported on a letter the governor sent to federal officials in which he wrote, “The consolidation is expected to result in thousands of lost jobs at the corporate and branch levels, with little hope these individuals will find alternative work in the retail banking field due to the oversaturated market conditions.”

That’s true. But what are the banks supposed to do when they face “oversaturated market conditions”? The federal government insures the deposits of individual investors. But when a bank can’t compete successfully, a sale(or consolidation or whatever you want to call it) is the mechanism for resolving the problem. It’s not exactly the invisible hand of the free market at work, considering the role that regulators play. But it is the way modern capitalism works. And in this case no one has come up with a better solution for this oversaturated market.

People here wonder what will happen in Hudson and Copake, where both banks have branches. Will another bank buy the offices that Key no longer wants? Will that save jobs? It’s possible Key Bank’s management can’t yet answer those questions. But it doesn’t take a deal between two regional banks to disrupt banking services in a small community. Early this month Key Bank announced it will close its Philmont branch at the end of April. There’s no other bank in Philmont, so you can’t call the Philmont banking market oversaturated.

Banks come and go all the time. First Niagara bought HSBC branches a few years ago; more recently Berkshire Bank bought a bunch of Bank of America branches, some of which, like the branch in Chatham, had other owners not long before. The churn of banks is an industry constant, as is the public’s need for banking services.

The governor and Sen. Schumer are right to challenge the deal, holding regulators accountable for applying the highest standards for solvency and good practices. If it’s possible to win commitments from the bank to assure services to displaced workers and operate branches in rural and minority communities, those promises should be in writing. But attempting to block this sale makes no sense. Banking will be radically different by the time a legal battle over the sale concluded. If you doubt that, look it up on your mobile device or ask someone younger to do it for you.

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