Archive for Monday, November 8, 2010

Small banks failing as larger firms recover with federal aid

November 8, 2010


— U.S. banks are failing at the fastest rate in two decades.

No, the financial crisis hasn’t returned. Wall Street doesn’t need another bailout.

But in communities around the country, 143 banks have collapsed so far this year — more than all of last year. This time, the failed banks are smaller, on average, than in 2008 and 2009. The damage to the industry has thus been milder this time. Still, the wave of closings points to the persistent struggles of many communities and states.

On Friday, regulators closed four small banks: One each in Maryland and Washington state and two in California — one of the hardest-hit states, where a dozen banks have failed this year.

As larger banks have regained their health this year, thanks in part to federal aid, smaller ones have struggled. Here’s why:

• Small banks made the riskiest commercial real estate loans — those used to develop apartment buildings, malls and industrial sites. Many such loans soured this year. About 13 percent of all bank assets consist of these high-risk loans. But for banks with $10 billion or less in assets, the figure is 28 percent, according to government data.

• Smaller banks didn’t receive the taxpayer aid given to Wall Street banks. The big banks recovered in 2009 with help from federal bailout money and fees on bank services. And unlike small institutions, large banks have profited from their investments in the resurgent financial markets even as they’ve reduced lending in distressed areas.

• The smaller banks haven’t had to bolster their financial health as much as larger banks have. Regulators forced big institutions to boost their capital cushions and write off bad loans early in the financial crisis. Not so for smaller banks. And unlike larger ones, many smaller banks are supervised by state banking departments that lack the resources or expertise to monitor them closely.

• Banks must write off bad loans as more borrowers fail to pay. And they must set aside money for other loans that might sour. That drain can endanger small banks with little extra cash. They hold a smaller proportion of safer loans than larger banks do. In the April-June quarter this year, banks with $10 billion or less in assets gave up on $13.6 billion in real estate loans that went bad. They had to reserve more capital for the next wave of souring loans. That reduced their earnings.

An additional problem is that unlike larger banks, smaller ones can lend only in their communities. If a local economy is weak, large lenders can tighten credit there. They can make more loans elsewhere. Small banks lack that option.

Despite the higher number of bank closings this year, the hit to the banking system has been less than last year. The assets of this year’s failed banks totaled about $89 billion. That’s scarcely more than half the combined assets of the 140 banks that failed in 2009. All but one of the 143 to fail this year had under $10 billion in assets. And about three-fourths of those banks had less than $1 billion.

By contrast, Bank of America, the nation’s largest bank, has assets worth about $2.3 trillion.


Richard Heckler 7 years, 6 months ago

Dwight Eisenhower was last Republican President to preside over a balanced budget. He had a balanced budget in 1956 and 1957.

Since then, there have been two presidents to preside over balanced budgets, LBJ in 1969 and Clinton in 1998 through 2001.

During the last 40 years there have been five budget surpluses, all five were under Democratic Presidents: 1969, 1998, 1999, 2000, and 2001.

To clarify, congress authorizes the budget. Between 1955 and 1981 Democrats held majorities in both chambers of Congress.

From 1981 - 1987 republicans controlled the Senate, while Democrats held onto the House and then regained the Senate while holding controlling the House as well from 1987 -1995.

Richard Heckler 7 years, 6 months ago

Take Your Money Out of the Hands of the Banking Oligarchs - you've got nothing to lose

The big banks on Wall Street, propped up by taxpayer money and government guarantees, have had a record year, making record profits while returning to the highly leveraged activities that brought our economy to the brink of disaster.

"Our money has been used to make the system worse -- what if we used it to make the system better?"

Take Your Money Out of the Hands of the Banking Oligarchs

The big banks on Wall Street, propped up by taxpayer money and government guarantees, have had a record year, making record profits while returning to the highly leveraged activities that brought our economy to the brink of disaster. In a slap in the face to taxpayers, they have also cut back on the money they are lending, even though the need to get credit flowing again was one of the main points used in selling the public the bank bailout. But since April, the Big Four banks -- JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo -- all of which took billions in taxpayer money, have cut lending to businesses by $100 billion.

Meanwhile, America's Main Street community banks -- the vast majority of which avoided the banquet of greed and corruption that created the toxic economic swamp we are still fighting to get ourselves out of -- are struggling. Many of them have closed down (or been taken over by the FDIC) over the last 12 months. The government policy of protecting the Too Big and Politically Connected to Fail is badly hurting the small banks, which are having a much harder time competing in the financial marketplace. As a result, a system which was already dangerously concentrated at the top has only become more so.

We talked about the outrage of big, bailed-out banks turning around and spending millions of dollars on lobbying to gut or kill financial reform -- including "too big to fail" legislation and regulation of the derivatives that played such a huge part in the meltdown. And as we contrasted that with the efforts of local banks to show that you can both be profitable and have a positive impact on the community, an idea took hold: why don't we take our money out of these big banks and put them into community banks? And what, we asked ourselves, would happen if lots of people around America decided to do the same thing?

Our money has been used to make the system worse -- what if we used it to make the system better?

Richard Heckler 7 years, 6 months ago

JP Morgan/Chase, Citi, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs may be "too big to fail" -- but they are not too big to feel the impact of hundreds of thousands of people taking action to change a broken financial and political system.

Let them gamble with their own money, not yours. Let's turn big banks into smaller banks. We'll all be better off -- and safer -- as a result.

Make it your resolution tomorrow to move your money. We can't think of a better way to start tomorrow.


seriouscat 7 years, 6 months ago

Wasn't "too big to fail" the problem in the first place?

Flap Doodle 7 years, 6 months ago

If the spouse of a member of Congress is holding an interest in your bank, you are likely to have smooth sailing.

whats_going_on 7 years, 6 months ago

I hope my small-ish bank doesn't fail, I like it :(

Richard Heckler 7 years, 6 months ago

Absolutely and nothing has changed.... these banks seem to have plenty of campaign dollars!

For the past 40 years I've worked with user friendly credit unions and done well.

Move Your Money!

Help Us Grow

The mission of Move Your Money is to encourage individuals and institutions to take their money out of Too Big To Fail banks and invest in community banks and credit unions.

What began as a conversation among friends over a dinner before Christmas has rapidly turned into a national grassroots movement. So far it’s generated hundreds of stories, millions of website visits, and thousands of individual actions.

Small banks and credit unions have experienced a surge in activity as a result.

And, amazingly, to this point it’s all been run on a volunteer basis, with people chipping in little bits of free time here and there. But now, as it grows, those volunteers don’t have the time to field the dozens of requests and opportunities that come their way every week. So it’s time to put a small operation and some resources behind the effort.

As a result, we are setting up a nonprofit project and looking to raise $200,000 to hire a two full-time staffers and furnish them with a modest budget.

They will help recruit, coordinate and network groups working on Move Your Money efforts; create a more dynamic website that can serve as both a clearinghouse for the effort and a social networking space for people to organize their own efforts and connect with others; identify the policy work that needs to be done; recruit other organizations to help with that work; promote and share the results of their efforts; get more people involved in untapped constituencies.

We’re also working to start local rallies in cities across the country to connect people with local banks and credit unions and encourage everyone to bank locally.

Find a bank or credit union:

Commenting has been disabled for this item.