Small Banks Still Doing Fine

• October 16, 2008

Back when the financial meltdown had just started making headlines I posted about how smaller, regional banks were largely unaffected. In fact, most of them said that they were still issuing loans freely albeit with a bit more caution when it came to credit qualifications. I noted at the time that this was likely because the smaller, regional banks had no assurances that they would be bailed out if they made poor lending decisions.
See, most regional banks can’t afford to pay off members of Congress like Fannie, Freddie and others did. And they certainly can’t afford to have big-money lobbyists on the payroll either. So they were forced to make good business decisions. Because it was either that or go out of business.
Today I got an email from my personal financial institution, Town & Country Credit Union, saying essentially the same thing:

A Message to Our Members
from
Darrell Olson, President / CEO
Town & Country Credit Union
The recent turmoil in the banking and financial sector has people concerned, and rightly so. Financial failures are the lead stories in both the local and national media and the public in general is beginning to question the safety of their money in depository institutions. However, I am proud to report that Town & Country Credit Union remains very safe and very healthy with a strong balance sheet along with solid capital-to-assets ratio.
Town & Country Credit Union has not been engaged in reckless lending and investment practices that has brought trouble to some larger financial firms around the country. Our assets consist of locally granted loans that have met quality based credit standards and we have not engaged in the sub-prime markets that we hear so much about in the news. Our credit standards have not changed and we have not reduced or cut back on our lending as reported in other areas of the United States.

It’s amazing what steering clear of government, and only giving loans to people who can actually afford them, will do for the solvency of a financial institution.

Tags: North Dakota News, Politics

http://SayAnythingBlog.com The_Whistler_ofnd

The thing is if you can issue a loan and then pass on the risk by selling it to Fannie or Freddie, why wouldn’t you.

If you’re following the standards laid out by them then you’ve done nothing wrong.

I think the problems came about when companies borrowed money to buy up these loans. Suppose you can borrow money at 3% and buy a “safe” investment at 3.5%. You then use that “safe” investment to borrow more money and get into it deeper. But as long as your investments stay solvent you can make a lot of money without investing your own.

Of course the “safe” investments weren’t safe and the government agencies (Fan and Fred) packaged their junk in such a way nobody knew what they had.

So there are two parties at fault. The people that packaged these loans and those that turned a blind eye and assumed these loans were safe. A pox on both of their houses.
http://SayAnythingBlog.com The_Whistler_ofnd

Town & Country Credit Union has not been engaged in reckless lending and investment practices

Golly, is that all it takes, not making reckless loans.

Who knew it was so easy to stay solvent?
http://www.bikebubba.blogspot.com/ Bike Bubba

Whistler, Bat One, I’d love to hear how small banks don’t have to make subprime loans under laws such as the CRA. I’ve got a hunch that my bank avoids this by not putting branches in the cities, but it would seem that regulation would get big and small alike.

For that matter, it’s an interesting question of how Wells Fargo avoided the worst of this.
http://www.bikebubba.blogspot.com/ Bike Bubba

I’d guess that, too. Then you’ve got Wells Fargo and Citibank going through this just fine…..what I’m getting at is that there are some very good lessons that can be learned here, both for the person in the business, and the person who simply wants to have a bank he can trust.

More thoughts, all?
http://www.rabidamerican.net/ Rabid American

Obama-bin-Biden will ensure that this doesn’t hold….

There’ll be some “spreadin’ of the wealth” going on here.
http://sayanythingblog.com robport

I’d suggest “localism.” Personally, I chose a local bank (er, credit union) because the people who run the institution live in my community. I could, if I ever wanted to, conceivably knock on their door and have a chat.

Plus, a local financial institution is more likely to be interested in investing in the community it lives in.

I think that if we ended some of the policies that lead to these massive, monolithic financial institutions we’d all be a lot better off. More localism means more local banks. More choices. And a more distributed financial system.

Win-win-win.
http://sayanythingblog.com robport

The thing is if you can issue a loan and then pass on the risk by selling it to Fannie or Freddie, why wouldn’t you.

That’s the point at the heart of this whole debacle.
http://sayanythingblog.com robport

Bubba, it wasn’t just the CRA that drove this problem. It was also pressure from lawsuits over lending discrimination.

I would suggest that smaller, regional banks tend to be in less-urban areas and aren’t as likely to be targeted by activists/lawyers.

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Small Banks Still Doing Fine

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