ss_blog_claim=bd50edc517cf0b7549fe6b5f63b6b5f8 The SLS Business Finance Blog: The Real Problem for Community Banks

Wednesday, June 18, 2008

The Real Problem for Community Banks

Many of us are aware that the RE problem we are facing is really a banking/mortgage problem. The problem is especially acute for community banks. When a bank writes a bad loan, they have to set $$ aside, known as loan loss provisions, to cover the losses. This is $$ that is now out of circulation and cannot be lent out. So banks and especially community banks have even less $$ to lend to their business clients than they had a year ago.

Why does this hurt community bankers more? It hurts them more because they have a higher touch, more personal service, and typically care more about their business clients than a large mega commercial bank. All banks have to say No but if that no is a threat to their deposit relationship with the client (the most important relationship a bank has) then that's really problematic for the community banker. Community bankers are greatly affected because they don't have a leasing division like Bank of America does. Large banks will target community banker client deposits by promising an approval for a loan (usually a lease) to bring them in. Community bankers need their own leasing resources to help them retain their existing clients. If nothing else, a leasing partner helps them retain their deposit relationships, which in the end create the upper limit of how much $$ the bank can lend due to Federal Reserve requirements.


Regina said...

Good for people to know.

Stu Lustman said...

Thanks for the feedback Regina. Do you work in banking yourself? hope to hear from you.