Breaking News: Smaller Banks Prosper During Crisis

The Washington Post reports that “Banks throughout the United States carried on with the business of making loans yesterday even as federal officials warned again that their industry is on the verge of collapse, suggesting that the overheated language on Capitol Hill may not reflect the reality on many Main Streets.”

Which begs the questions: With bipartisan opposition from objective experts, why should any Congressman instead believe the very same Bush officials who helped create this crisis with their deregulation? These same Bush officials who just months ago said our economy was fine? All seems well with the majority of small banks across the nation.

The industry is resilient despite the struggles of some members. Washington Mutual, a troubled Seattle savings and loan that was among the nation’s largest mortgage lenders, yesterday was seized by the government and sold to J.P. Morgan Chase.

At the same time, many smaller banks said they were actually benefiting from the problems on Wall Street. Deposits are flowing in as customers flee riskier investments, and well-qualified borrowers are lining up for loans.

The National Federation of Independent Business members only had 10% that said loans were harder to get in August. But only 2% cited that cost and credit as their number one business problem. However, this is well below the 37%; that noted credit as their biggest challenge in 1982.

Even some of the nation’s largest banks, which have pushed hard for a federal bailout, deny that the current situation is forcing them to reduce lending. “The strength of our core businesses, capital and liquidity are enabling us to continue to support our customers,” Bank of America, the nation’s largest bank, said in a statement. It added, however, that the bailout plan would allow more lending.

Many small banks are rolling in extra cash. I called both of my banks to inquire if I could get a loan. They both asked me how much I needed and said they could have the paperwork done today.

Smaller banks, by contrast, make few mortgage loans, and their lending is fueled by deposits, rather than borrowing. That has insulated them from the troubles on Wall Street.

“We’re drowning in liquidity because people are pulling money out from other places and depositing it with us,” said Peter Fitzgerald, chairman of Chain Bridge Bancorp in McLean. “Our bank has benefited tremendously.”

After one week of Paulson demands, shouldn’t there be almost a unanimous consensus among Congressmen and bi-partisan observers before spending 5 percent of our entire economy? It’s time, as The Who said, that we “don’t get fooled again.”

5 thoughts on “Breaking News: Smaller Banks Prosper During Crisis

  1. This doesn’t surprise me. It’s always the small businesses that survive in an economic downturn because a small business cannot afford to over-extend itself. Small businesses need to survive within their means.

  2. Good Morning Cats 🙂 All of the banks in my area are doing great. They never got involved with risky loans that weren’t covered with the proper collateral. I talked with both of my banks yesterday and received very good news that they would have no problem meeting the demands of loans and credit extension.

  3. I posted this on TP and the open thread a few minutes ago, thought it bore repeating:

    I heard Rep Fazio of Oregon last night saying that the plan is crap.
    The FDIC is staging all this by ruling how the banks have to value these bad debts on their books.
    Change that ruling, as they did durning the S&L bailout in the 80’s and the problem vanishes overnight.
    The real help should be in the form of restructuring the loans that are forcing the dumbass homeowners who got in over their heads, and now are facing foreclosure.
    They’ve stopped making payments altogether, as no other alternative is available.
    The crap bankruptcy law passed a couple of years ago also needs to be amended, to allow a bankruptcy judge to rework home loans when they are judged to be predatory.
    As for the dumbasses who bought more than one home on speculation, sorry suckers.

    Case closed, pouring money at the top of Wall street and hoping it trickles down is a waste of our tax money.

  4. Actually, if you have money, now is the time to buy real estate. During the depression, large swatches of farms were purchased by one land owner in the township where I live. This turned out to be a good investment for this landlord. Eventually, the properties were sold off to individuals. There was a good outcome to this as this landlord preserved large amounts of open space which is now being protected further from development. This doesn’t happen in every instance. There are some really good real estate bargains out there.

  5. They have a beautiful farm here Cats, that I would love to buy. It is at a rock bottom price. Tempting is the word for it. I have spent so many years remodeling this particular house though it is hard to leave… But all that space sounds so nice and peaceful…

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