It appears that small banks are doing fine, taking in deposits and lending money to small business that are a good risk. It seems we may be observing an active period of market evolution, where the larger and highly leveraged institutions are failing and a diverse group of smaller institutions are thriving. It seems the market is attempting to select for smaller institutions, with many larger ones failing. Unfortunately, the politicians don't like this and seem to want to prop up the larger institutions instead of letting them fail:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504155_2.html?sid=ST2008092600236&s_pos= 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. "We collect money from local savers, and we lend it in the local community," said William Dunkelberg, chairman of Liberty Bell Bank in Cherry Hill, N.J. "We're doing fine. There are 9,000 financial institutions out there, and most of them are small and most of them are doing fine." Dunkelberg, a professor of economics at Temple University and chief economist for the National Federation of Independent Business, added that a recent survey of that group's members found that only 2 percent said getting a bank loan was the great challenge facing their businesses. 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." Fitzgerald, a former senator from Illinois whose family has been in the banking business for generations, said the current situation struck him as similar to past downturns. "The banking system did need to slow down," Fitzgerald said. As it does, riskier customers are being turned away. At the same time, banks that overextended are now forced to turn away even good customers. The challenge for Chain Bridge, he said, is identifying the worthwhile customers. The bank has plenty of money to make good loans, he said. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
