Community Bank Director Chimes In Regarding Small Business Lending
In response to $30 Billion Offer No One Wants - Small Businesses Hit by Deflation I received this email from a director of a small bank.
Hello Mish,I sit on the board of a small community bank and I can attest to the fact that our loan portfolio is in excellent shape even when taking into consideration today’s dismal economy. That is not to say a loan is good when made can go bad but if that happens, our bank has sufficient collateral pledged against the loan to cover such short falls. We also review our loan loss reserve and increase as needed based on criteria established under current banking regulations.
Sure there are numerous troubled banks identified by the FDIC but I feel many of these banks will survive.
All banks should be making reasonable earnings with today’s low interest rate environment. For community banks, loans are vital and banks are interested in making loans to individuals or businesses that meet our underwriting standards but loan demand is down. A big majority of our loans are just loans leaving another financial institution. Why would someone leave one bank for another?
Of course loan interest rates play a part in the decision but I think a big part is the relationship a customer develops with the loan officer. Dealing directly with a local loan officer who understands your business and is genuinely interested in your business is vital.
Today many larger banks only use local loan officers to bring in the loan request but the decision to make the loan and the terms rest in some committee located in a town far away. Most small business persons will leave such a bank for a local bank with more personalized service.
It’s ridiculous that Congress passed and our president signed a bill to provide funds to smaller banks for more loans. As a bank director, there is no way this plan can work. If a bank needs more deposits for loans, assuming the bank has sufficient capital, a banker can easily get more deposits from the public at a much lower cost than the bill passed by congress.
Our government is totally out of touch with the real world and passed this legislation strictly as a political move to make the public think they are trying to help small businesses.
This bull, I mean bill, should be labeled TARP II or some similar acronym.
Bazooka Lending Theory and Practice
Unlike October 2008, when Paulson forced the CEOs of the 9 largest banks to accept funds (See Compelling Banks To Lend At Bazooka Point) no one is forcing small community banks to do anything.
This is what I wrote in 2008 …
For now, you can force banks to take money, but you can’t force them to lend it.Bazooka Theory
There seems to be a fine line between ..
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Tags: Business, Community, interest rate environment, lending, loan interest rates, loan loss reserve
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