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.

2 comments:

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.

Stu

Stu@southernlendingsolutions.com