Last week, The Washington Post ran a front page story about the role played by large banks in the financial system.  U.S. financial institutions have taken tremendous steps in recent years to reduce risk on their balance sheets, shore up capital, and focus on prudent, responsible lending.  Claims that banks with global reach are somehow inherently bad or more risky are wrong.  

Large institutions provide significant value to customers – in the sheer size of credits they can deliver, in the array of products and services they can provide, and their geographic reach – that smaller institutions simply cannot provide.  This unique economic value is particularly important to large, globally active U.S. corporations and contributes directly to economic growth and job creation.

According to a report released this week, more than 25 large banks have also increased small business lending in 2011, with the largest banks pledging an additional $100 billion for 2011 and beyond.  Commercial banks with more than $10 billion in assets make half of all small business loans.

Large institutions are also far more diversified in their business mix and revenue streams as compared to smaller institutions, which tend to be engaged in fewer business and regions and, therefore, are exposed to greater concentration risk.  In this regard, larger institutions are more stable than smaller institutions.  Rather than being a source of risk, size and diversity of activities can be a risk mitigant. 

Research conducted by Columbia University finance professor Charles Calomiris has shown that the gains produced by efficiencies of scale and scope at larger institutions accrue to customers in the form of better and cheaper financial services.  Large financial institutions – active in many markets and many countries across the globe – have served to integrate global stock, bond, and foreign exchange markets, making those markets more modern, liquid, and efficient. 

Large, globally active financial institutions have also expanded the supply of credit and other financial services to emerging market economies, contributing importantly to the expansion of trade flows, opening foreign markets to U.S. goods and services and, therefore, contributing importantly to economic growth and job creation.

To be a global financial leader, the United States needs institutions of all sizes, business models, and areas of expertise.  And being a global financial leader is an enormous strategic advantage for the U.S. economy and American businesses, workers, savers, and investors – an advantage we should work hard to preserve.